Recovery Continues with Strong Fundamentals, Tightening of Prime Space in Industrial Market

The Twin Cities multi-tenant industrial market is experiencing positive momentum as demand for well-located, functional warehouse/distribution space continues. Vacancy dropped to 11.7%, which is a 10-year low and a big decrease from 16.4% in 2010.

Compass_SubmarketMap_Industrial_600pxThe Northwest remained the tightest submarket at 10.3% vacancy, followed by the Southeast at 11.7%, the Northeast at 12.3%, and the Southwest at 12.4%. The largest leases signed were BTD Manufacturing backfilling 190,000 sf that Toro vacated in the Southeast (Lakeville), and Citrus Systems leasing 132,000 sf in the Southwest (Hopkins).

Users continue to seek functional distribution space with high-clear ceilings to increase efficiencies. Large blocks of modern, well-located space are quickly being absorbed as tenants take advantage of the few remaining options market-wide.

Outlook
The market could see 950,000 sf of positive absorption in the second half for a total of 1.85 msf in 2013. This would be a decrease from the 2.5 msf in 2012, primarily because the shortage of large, prime space options will limit the number of leases signed. Significant absorption is anticipated in the Northeast as it is “poised” for several large deals to close. Eight users there are seeking spaces of 40,000 to 100,000 sf.

Rates in the best properties will likely continue to increase, while landlords of older, less-functional space will likely continue offering aggressive rates and incentives to fill their buildings.

Upward pressure on pricing is expected for user-buildings because of the lack of leasable space options and lack of user-building inventory.

The shortage of functional space should also continue to drive build-to-suits and speculative projects. Approximately 550,000 sf of space is under construction, and another 450,000 sf is planned. Developers are expected to continue taking land positions.

To read more, visit the July 2013 edition of Cushman & Wakefield/NorthMarq’s Compass report, now available online.  Visit the web site: www.northmarqcompass.com

About Cushman & Wakefield/NorthMarq

​Cushman & Wakefield/NorthMarq is a joint venture formed in September 2011 by NorthMarq Real Estate Services and the Minnesota operations of global real estate services firm Cushman & Wakefield. By combining the talent of both organizations at the regional level with the global platform of Cushman & Wakefield, we offer clients the best combination of regional strength and global capabilities. The result: the leading commercial real estate firm by all measures in the Upper Midwest.
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