Posted by carlson on March 22, 2018 in Market Update, Uncategorized

Vacancy and Absorption Trends

2017 ended strong for the Twin Cities industrial market. The 4th quarter saw 1.1 million square feet of positive absorption, which was by far the strongest quarter of the year. Net absorption totaled 2.36 million square feet for the year. This puts 2017 slightly below the positive pace of 2016 and 2015 but still well above annual averages of the past 15 years.

Vacancy rates continued to remain at all-time lows as demand for industrial space outpaced new supply. The metro-wide vacancy rate of 6.6% is below 3rd quarter’s mark of 6.8% and has improved from the 2016 year-end figure of 7.0% vacant.

The Southwest and Northeast submarkets stood out as the best performers of 4th quarter. The Northeast continued to benefit from some of the most centrally-located new industrial developments throughout the metro area. Those developments, including Northern Stacks, positioned the Northeast as the leading submarket in terms of net absorption both in 4th quarter and year-to-date. Within the Southwest, Shakopee accounted for 375,000 square feet of positive absorption with new construction completions. Year-to-date, the Shakopee-led Southwest submarket recorded the second highest total absorption of all five submarkets.

Construction has continued to be one of the main drivers of large-scale leasing activity in the metro. As the overall vacancy rate continues to drop and the demand for industrial users rises, new construction is often times the only option for users of a certain size.

Fourth quarter 2017 saw 1.65 million square feet of industrial construction completed – significant for year, yet alone one quarter. Year-to-date, a total of 2.9 million square feet of industrial space was completed, with 1.75 million of that multi-tenant product. The year-end construction total is roughly in line with the prior three years which saw approximately 3 million square feet completed each year.


There is an additional 2.5 million square feet of industrial space currently under construction and expectations are for several new speculative multi-tenant projects to be announced soon. Estimates show 2018 recording more total square feet of new construction than 2017.

In terms of rental rates, average asking rates are $4.91 psf for warehouse space and $8.97 psf for office. Rates have remained consistent on the macro metro-wide scale for the last two years. New construction is continuing to receive a 10-15% premium. While overall rent is not increasing, there has been a decrease in concessions granted compared to previous years, effectively raising total real estate costs for tenants.

Market Insights

The Real Cost of Labor Shortage

The most recent unemployment figure for the Twin Cities metro area is 2.4%, which is the lowest unemployment rate in the nation for metro areas with over one million in population. This puts the Twin Cities significantly below the full employment figure. Anything below full employment means that companies are being negatively impacted by losing opportunity and work, which should be a cause for concern. Main job sectors finding it difficult to find qualified employees are the trades and manufacturing, including many industrial focused tenants.

From a real estate perspective, it is even more important for tenants to be located where they have the best chance of finding workers. Firms spend a significantly higher amount on wages than real estate, so added rental cost of a location that is more desirable from a recruitment standpoint is dwarfed by total cost of paying more in wages to lure employees.

A hypothetical company with 100 employees in 100,000 square feet paying $15 per hour is spending four times more for labor annually than total gross real estate. For every dollar they would have to pay to attract an employee due to poor location, it would be the equivalent of raising rent by $2 per square foot. When industrial average rates are in the neighborhood of $4.50 per square foot to start with, paying even a slightly higher rate for a better location could save costs in the long run.


Posted by carlson on February 28, 2018 in Market Update

Economic Overview

According to the Bureau of Labor Statistics, the unemployment rate in the Twin Cities metropolitan statistical area (MSA) decreased 0.7 percentage points from 3.7% at the beginning of 2017 to 3.0% as of December 2017. The year-end unemployment rate compares favorably to Minnesota (3.1%) and the U.S. (4.1%) yearend figures. The Minneapolis-St. Paul MSA’s non-farm employment increased by 51,200 jobs over the past year. Office using jobs (information, professional and business services and financial activities) added 7,000 jobs during the past year.

Vacancy and Absorption Trends

 The Minneapolis-St. Paul office market recorded 635,891 square feet (sf) of negative absorption in 2017. The total vacancy rate increased from 15.4% to 17.8% year-over-year. Direct vacancy increased 1.8 percentage points during the same period reaching 16.8% at the close of 2017. Comparing year-over-year direct vacancy rates, the Class A vacancy rate increased 2.5 percentage points, the Class B vacancy rate increased 1.6 percentage points and the Class C vacancy rate increased 0.4 percentage points. Weighted average asking rents in all markets and office classes increased from $25.22 per square foot (psf) in 2016 to $25.28 psf in 2017.

Market Highlights

The Minneapolis-St. Paul office market recorded five consecutive quarters of total negative absorption. Quarters Q3 2016, Q4 2016 and Q1 2017 were primarily due to companies moving from multi-tenant properties to single tenant headquarters. Quarters Q2 2017 and Q3 2017 were primarily due to tenants vacating subleased spaces. Q2 2017 recorded 82,000 sf of positive direct absorption and 3Q 2017 recorded 33,074 sf of positive direct absorption. The Minneapolis CBD Core micro-market recorded the most positive absorption of 26,329 sf and the West market was second recording 24,740 sf. The Northeast market reported 31,290 sf negative absorption primarily due to UTC vacating 75,601 sf of sublease space while they closed and moved out of the country. There was 2,105,389 sf of office space under construction as of year-end 2017.


Posted by carlson on October 5, 2017 in Market Update

The Building Owners and Managers Association (BOMA) will be releasing a new version of its Office Standards this fall. The most significant changes will address how building measurements will be calculated.

Proposed changes include additions to what’s considered to be “rentable areas.” Areas such as balconies and rooftop terraces and the lowest levels of vertical areas such as stairwells and elevator shafts will now be included.

The new standards will also align better with the International Property Management Standards (IPMS) for increased standardization — even across borders.

The revisions reflect industry best practices that have evolved since BOMA released its previous version of Office Standards in 2010. By reevaluating and tightening standards, BOMA seeks to make space evaluations more equitable. Solid, consistent standards will make direct comparisons among properties easier.

In most cases, these new standards will increase the square footage of “rentable areas.” The size of that impact will vary depending on the specific properties. Using previous versions of the BOMA standards will still be possible— it will just depend on the priorities of the owners and whether re-measuring is warranted.

“At Carlson Commercial, we’re making every effort to understand how these new standards will impact our clients,” said Ted Carlson, President of Carlson Commercial. “As soon as we have the new standards in hand, we’ll start to evaluate how to navigate the changes for both tenants and landlords. There definitely won’t be a one-size-fits-all solution.”


Posted by carlson on May 22, 2017 in Market Update

Trends in Industrial, Retail and Office

The more things change, the more they remain the same. It’s certainly true for the Twin Cities real estate market. While some areas within the metro have experienced major shifts and realignments, the overall commercial real estate market is strong. And as always, market behavior depends on specific locations.

Here’s the big picture:

  • Industrial continues to grow, with vacancy rates dropping and new construction coming into the mix.
  • Retail is struggling with closures resulting in a glut of big-box space.
  • Office space is flat, thanks in large part to one big player – Wells Fargo.

Here’s how is breaks down by the numbers, with absorption indicating the total new square footage leased by tenants.


  • 4Q 2016 closed with 603,000 square feet (sf) of positive absorption with year-end total absorption topping 3,000,000 sf.
  • The Southeast market vacancy rate saw a drop from 10% in 1Q 2016 to 7.0% at the end of 4Q 2016. Amazon, Ikea and Bell International leases drove this drop.
  • New construction continues to be strong in the Northeast market.
  • Class A industrial space continues to experience strong activity. Throughout the metro area, speculative projects have experienced strong leasing velocity.


  • 4Q 2016 closed with 296,000 sf positive absorption, resulting in year-to-date total of 1.1 million sf positive absorption.
  • 260,000 sf of new construction caused much of the positive absorption and grocery stores accounted for 132,000 sf absorption.
  • Sears, Kmart, and Office Max location closings had a major impact on the market.
  • The Southeast continues to see the most growth with 539,000 sf out of the total 1.1 million sf under construction in the metro.
  • It’s no secret that the retail market as significant challenges, however well located neighborhood sites continue to experience strong rent growth and strong leasing demand.


  • 4Q 2016 closed with negative 385,000 sf of total absorption, including negative 37,000 sf of sublease space. Year-to-date the market closed with negative 533,000 sf of absorption with Wells Fargo accounting for -804,029 sf of absorption in 2016.
  • Wells Fargo was a major contributor to the negative absorption trend when they vacated 525,000 sf during 4Q 2016 to move into their new headquarters.
  • Just over 1,380,000 sf of office space is under construction with the majority in the Southeast market with 12 buildings adding 807,852 sf.
  • Office users continue to drive density to control occupancy costs. Almost all of our clients are now below 200 SF per person.

As always, we keep our eye on the big trends as well as the smaller, highly localized fluctuations in the market in order to help our clients find spaces that fit their needs. We keep the data from 2016 in mind as we negotiate deals today, while watching for indicators that can shape demand. There are plenty of opportunities in the current market for organizations looking to make a change – and we know where to find them.

Industrial Market – Twin Cities

Posted by carlson on September 8, 2014 in Market Update

quote The Twin Cities industrial market is strong, according to a recent Star Tribune report.  Eight speculative projects totaling over 1.2 million SF are underway.  Diving deeper, we see certain product types doing well, while others struggle.  Class A, well located buildings continue to see good leasing activity – which is exactly the type of product under construction.  Functionally challenged and/or poorly located buildings will continue to struggle. The cost of doing business is high to operate inefficiently.

For the detailed report, follow this link:

To find below market opportunities and review market comps, please contact us.

Welcome & Market Snapshot

Posted by Camille on July 21, 2014 in Market Update

Mendota Hts IndWelcome to Carlson Commercial!  We are a privately held, Twin Cities based commercial real estate firm.  We align real estate strategy to fit business strategy for companies that own and lease office and/or industrial warehouse space.  Carlson Commercial assists with leased space relocations, renewals, renovations, and restructures.  We will manage/interview vendors with you.  And we are without conflict, as we do not represent institutional Landlords.

The commercial real estate market has rebounded nicely within the past 12 months.  In both office and industrial space, absorption of vacant space has increased and rental rates are climbing.  New construction has led the industrial market, whereas for office space developers are crafting plans to build new space.

Class A office asking rents have increased, especially in SW suburban trophy properties.  Normandale Lakes and Centennial lakes are both 95%+ occupied.  In 2015,  Barr Enginnering will relocate to 150,000 sf at MarketPoint in Bloomington.  The North Loop and Warehouse District are very active, as growing companies lease “tech” type space that offer the amenities 20-somethings crave.  On a parallel path, Code 42 software is in talks to kick off a significant office building in Uptown.  Large blocks of contiguous space are in short supply.

Industrial space has also experienced a renaissance of sorts, in that large bulk distribution space is difficult to find.  The NW metro is far and away the leader in new projects with United Properties, Ryan, CSM and Liberty all leasing space.  Developers are actively hunting for quality sites in the south Metro and Ryan & Opus have both done well with Shakopee projects.  There is nearly 1.5 million SF of speculative industrial space planned within the Twin Cities market.  Thankfully, in April the MN State Legislature overturned the B2B warehouse tax that would have crippled 3PL and other warehousing providers.

Please contact us for in depth research and market trends that are customized to your business needs!