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.