- More institutional investors eyeing assets in the Twin Cities, primarily the highest-quality product
- Multi-family continues to be hottest product, particularly Minneapolis CBD properties
- Retail investors remain focused on only the best centers
Quality Still Investors’ First Priority
Office properties are attracting more interest from a greater variety of national and regional investors. Secondary markets such as the Twin Cities are increasingly in favor among larger national investors, as evidenced by recent transactions in the office market such as the sale of 33 South Sixth Street in the Minneapolis CBD and the Normandale Lake Office Park in Bloomington. Large institutional investors such as pension funds and insurance companies are also circling the Twin Cities in search of quality real estate assets such as grocery-anchored retail, well-performing office and industrial product, and new class A multi-family apartment projects.
Rampant Interest in Twin Cities Multi-Family Product
Both debt and institutional capital is flowing into new multi-family construction, especially higher-end product in the Minneapolis Central Business District (CBD) and Uptown neighborhood, as well as select suburban areas. The Minneapolis CBD continues to see an explosion in new, high-end apartment building construction, fueled by an almost insatiable demand from renters attracted to the city’s urban lifestyle. Developers in the CBD are hitting their targets of $2 per square foot (psf) rental rates for new best-in-class apartment projects. Until recently, there was great uncertainty as to whether there would be broad market support for such an escalation in rental rates. Now the question is whether those rates be pushed a little higher yet. Some lenders are even encouraging developers to underwrite with higher pro forma rents, an uncharacteristic move.
Uncertainty Drags on Retail Investment Market
National retailers such as Cost Plus World Market, Whole Foods Market and Trader Joe’s are exhibiting confidence in the Twin Cities retail real estate market, but the investment side of the market remains shallow. Few investors are willing to take a risk on anything but the most highly sought-after retail properties, such as grocery-anchored retail. The focus is on credit risk among tenants in power centers and community centers, and it’s tough to pass the credit risk test, as evidenced by the small number of transactions that took place in 2012. Market fundamentals are improving, however, and new development is at a low ebb. The inventory of empty big-box buildings is down to roughly 48 across the market, much improved from the overstock of approximately 80 unoccupied boxes in early 2010.
To read more, visit the January 2013 edition of Cushman & Wakefield/NorthMarq’s Compass report, now available online. Visit the web site: www.northmarqcompass.com