With today’s market conditions, new industrial development is sparse in the Twin Cities area. Only a handful of local developers are attempting to lease speculative new construction. The majority of industrial development is taking place in the outer-ring suburbs due to the scarcity of land in close proximity to the metropolitan area.

Dan Swartz Vice President CB Richard Ellis

The majority of new construction projects are build-to-suit, single-tenant buildings. Many are developed for tenants new to the market or for those wanting a second location. As a result, the new construction may create some additional vacancy in the company’s former location, but not a significant amount, says Dan Swartz, vice president in the Minneapolis office of CB Richard Ellis.

There has also been significant development in office/warehouse condos throughout the market. These developments have been successful with 2,000-square-foot units to 4,000-square-foot units selling between $70 per square foot and $80 per square foot.

Two large distribution facilities are being built across the border in Wisconsin. The Ford distribution center is nearing completion in Menomonee, and the General Motors distribution facility was recently announced in Hudson.

“We are not expecting any major new developments in the near term due to the vast amount of available existing space,” Swartz says. There are a few new developments in Minnesota that are at the planning stage, including Lexington Commons, being developed by CSM in Blaine; France Avenue Business Center III, being developed by Real Estate Recycling in Brooklyn Center; and Schmidt Lake Business Center, being developed by First Industrial in Plymouth. “In order for construction on any of these projects to commence, the market needs to change for the better or a pre-lease needs to be executed,” Swartz says.

Minneapolis/St. Paul is an area with a diverse range of businesses. “Most landlords in town are trying to attract businesses for their developments, but they aren’t so focused on the type of business because they simply need to fill vacancies,” Swartz says.

This diversity insures that no single tenant or tenants can drive the market, but the activity of a large tenant can affect it somewhat. For example, ADC Telecommunications created a vacancy rate of more than 20 percent in the Shakopee, Minnesota, market when it vacated 1 million square feet of space.

“The one industry segment in which we have seen positive absorption is business related to residential and consumer goods,” Swartz says. For example, HOM Furniture purchased the 332,000-square-foot former Lund Industries building in Anoka, Minnesota.

Recent major leases in the Twin Cities area include Xpdexs’ lease of 125,000 square feet in the LDI building in Brooklyn Park; RR Donnelly’s lease of a 110,000-square-foot build-to-suit in the Crosstown North Business Center in Brooklyn Park; Banta’s lease of 122,000 square feet in the 12th Avenue Business Center in Shakopee; North American Marketing Group’s lease of 67,000 square feet in Park 2000 in Shakopee; and Land O’ Lakes’ lease of 80,000 square feet in Pilot Knob Distribution Center in Mendota Heights.

Warehouse rental rates in the Minneapolis area vary from $3 per square foot to $5 per square foot and $7 per square foot to $10 per square foot for office space. The overall vacancy rate in the industrial market is 9.22 percent with a base of 314 million square feet. The east submarket has the lowest vacancy rate of 5.82 percent, and the southwest submarket has the highest vacancy rate of 11.66 percent.

Regarding future development in the area, there are a number of submarkets to watch. “Growth will continue in the northwest market all they way up in the Interstate 94 corridor to St. Cloud,” Swartz says. “When Shakopee is able to fill its significant vacancies, it will indicate that the Minneapolis market has turned for the better. The northeast has been solid for a number of years and now has two, possibly three, major developers proposing significant developments in Blaine.”

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