HEARTLAND SNAPSHOT, MARCH 2007

Minneapolis/St. Paul Retail Market

Sara Martin Retail Broker NAI Welsh

The retail sector of the Twin Cities commercial real estate market saw a noticeable deceleration of activity throughout 2006, as property taxes and rental rates peaked and the residential boom of recent years tapered off. Recent development trends in the area have included a movement towards mixed-use centers, and the densification and refurbishment of centers within the core suburbs.

Significant developments in the area include the second phase expansion of Mall of America, a $1 billion, 5.6 million-square-foot mixed-use development; Fountains of Arbor Lakes in Maple Grove, Minnesota; Cedar Pointe Commons, a Target-anchored retail center in Richfield, Minnesota; Lunds and Whole Foods grocery stores in Minneapolis’ central business district; and The Plaza at Rosedale Center.

Current development hot spots include the south metro area (Lakeville, Savage, Shakopee, Chanhassen and Chaska, Minnesota) and the northwest metro region (Maple Grove, Rogers, Albertville and St. Michael, Minnesota). The increased residential growth in those two submarkets, coupled with a higher income demographic has attracted a number of developers to the area. The most active developers in the Twin Cities region include Ryan Companies, Opus and CSM Corporation.

The region has also seen an influx of new retailers, especially restaurants including Fogo De Chao, a 10,869-square-foot Brazilian steakhouse that is scheduled to open this spring; Salad Creations, a 1,000-square-foot salad restaurant opening at Retek on the Mall; Raising Cane’s Chicken Fingers; and Crave. Additionally, two new specialty retailers have entered the market — Zia, a new sleep-focused retail concept by Jim Gabbert; and Max Muscle Sports Nutrition, a health store that sells nutritional supplements and workout apparel.

Vacancy rates vary throughout the region depending on the retail product, with the overall market at 4.39 percent direct and 4.85 percent with subleases. Vacancy rates for community centers measure 2.54 percent direct; neighborhood centers with 5.38 percent direct and 6.58 percent with subleases; outlet malls at zero percent vacancy; regional centers with 3.81 percent direct; and Minneapolis’ central business district with 22.85 percent direct and 24.93 percent sublease.

The new Highway 312/212 corridor towards Chaska, Minnesota, is definitely an area to watch for future development. When the new road opens, new development is expected to happen quickly, and all of the developers that built before the curve and have excess vacancy will finally get some relief. Other areas with a great deal of development potential include the Blaine, Minnesota, Highway 65 corridor and the 101 corridor between Rogers and Elk River, Minnesota.

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