Scarcity of Available Land Pushes Residential and Industrial Developers to Expand Geographic Interest

Residential and industrial uses continued to dominate activity in the Twin Cities land market in first-half 2014. Thanks to a healthy amount of activity during the past few years, available land in the first-tier markets is now scarce, and developers are looking toward a “new frontier” as they expand into previously passed-over territories. Good land in the path of progress is attracting prospectors and deals.

Industrial Developers Going Spec
After being one of the most sought locations, Shakopee is now generally considered “full.” Most speculative industrial land sites are occupied. Similarly, other first-tier markets, like Rogers and Maple Grove, are running out of vacant land thanks to all the speculative development that took place in recent years. Industrial developers are now taking speculative land positions in the next tier of cities, including St. Michael, Lakeville, Lake Elmo, Otsego, Hudson, western Wisconsin and beyond. They are seeking large sites that meet the needs of bulk distribution users. In the current development cycle, which should last for the next five to six years, it is estimated that approximately 50% of these spec land purchases will get deals done.

Build-to-suit users are seeking what land remains in cities like Rogers and Brooklyn Park, and they’re also expanding their search into outer-ring cities like St. Michael, Lake Elmo and Lakeville. Industrial developers, including Duke Realty, United Properties and Scannell Properties, are leading the charge. In comparison, there is limited activity among the flex/warehouse users. Overall, land prices are increasing in 2014, and the industrial land market remains strong.

Residential Activity Hits the Suburbs
The residential market continues to be very hot, and land is being grabbed up quickly. In the single-family sector, pricing is trending slightly upward as developers lock up sites in communities like Woodbury, Maple Grove, Cottage Grove, Lakeville and Lake Elmo. Developers are chasing the sewer lines at the edge of the MUSA district and also buying in-fill sites such as golf courses and schools. Where they can, they are working to tackle larger lots of land, typically 200-300 acres, though only taking down 40-50 acres at a time. The scale of projects has increased during the past few years. In general, cities are becoming more flexible and welcoming this growth.

Land-map-0714_650px

In the multi-family residential market, projects are starting to be built outward as developers look toward the second-ring suburbs like Brooklyn Park and Plymouth. Suburban developers are becoming a bit less discriminating—they want to get projects started and can no longer hold out for the prime “A” locations. However, these developers are finding the economics of suburban projects more challenging since suburban projects are frequently less vertical (only two or three stories) than those in an urban setting. The lack of height shrinks the profit margin. While there is demand, developers are hesitant to put shovels in the ground until they can make the numbers work.

Activity in the senior and affordable housing markets remains strong. Overall, it is a seller’s market in the preferred and most desirable first-tier locations.

Agriculture Market Slows
The activity level in the agricultural land market has slowed substantially in the past year. There is still some interest among farmers for neighboring properties so these sales are continuing to close, but overall velocity is down. Values have dropped approximately 10% from last year. One resulting trend is that more property owners are selling what would be classified traditionally as agricultural land to the more active industrial and residential developers.

Retail Dominated by “Daily Needs” Players
There is little land activity among the big-box retailers in the Twin Cities market. However, “daily needs” retailers like grocers and gas stations remain active. For example, the entry of HyVee, the Iowa-based grocer, has people excited. The supersized super-market chain is planning to open multiple locations of its sprawling 90,000-sf stores in both in the east and west metro. While some stores might be in-fill developments, others will be ground-up as they require 12-13 acres to accommodate their prototype, which includes an on-site gas station and drive-thru pharmacy. Developers will be following their progress closely as these sites will deliver the high traffic counts and good access points that will attract other retailers.

One of the most active retail categories in the market currently is the gas station/convenience store operators, including Kwik Trip, Holiday and SuperAmerica. All three are aggressively looking for sites to develop both in the greater metropolitan area and out-state.

Automotive Players Making Noise
Thanks to strong sales nationwide, car dealerships are running out of space as they bring in new models and inventory at their existing locations. Manufacturers are encouraging dealerships to renovate their showrooms and/or expand, and they’re also starting to press for brands to be separated rather than be housed under one roof. This activity, coupled with the addition of new flags in town, has made the automotive category one of the busiest players in the Twin Cities.

The problem all the dealerships are facing is that their options are limited. It is difficult to find sites and receive city approval to build new stores. Some have been successful in their search, while others have had to stay on-site and renovate or redevelop.

This push in the automotive sector is expected to continue for the next few years. However, with a lack of prime locations available and a difficult approval process, many dealerships might be forced to make do with what they have and rely on a new coat of paint to improve their sites.

Outlook
Moving into the second half of 2014, build-to-suit and speculative development for distribution centers in the industrial sector is expected to be even stronger. Territories are being expanded as industrial developers seek available land for purchase in the next tier of cities.

On the residential front, multi-family developers have been going strong for the past few years and are expected to continue their push into the suburbs. Retailers are taking note and following the residential growth, as seen by the increased activity among the “daily needs” providers like grocers, banks and gas stations.

With all the industrial and residential development pushing into new markets in the greater metropolitan area, cities will play a key role in whether these projects move forward. All the industry players will be watching closely to see how they respond.

To read more, visit the July 2014 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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