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Twin Cities industrial sector strong, despite rising vacancies, report shows | Finance & Commerce

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Skip to contentBrian JohnsonOctober 3, 2023The biggest industrial development reflected in Colliers’ Q3 Industrial Market report is the 1 million-square-foot The Cubes at French Lake, which rose on a 65-acre site at 11500 Lawndale Lake in Dayton. (File rendering: CRG)HomeNewsReal EstateTwin Cities industrial sector strong, despite rising vacancies, report showsThe biggest industrial development reflected in Colliers’ Q3 Industrial Market report is the 1 million-square-foot The Cubes at French Lake, which rose on a 65-acre site at 11500 Lawndale Lake in Dayton. (File rendering: CRG)Brian JohnsonOctober 3, 2023New industrial buildings delivered in the wake of COVID-19 are pushing up vacancies in the Twin Cities metro area, but demand for warehouse space is still strong, according to experts and a new market report.In the third quarter, the overall vacancy rate for industrial buildings was 4% metro-wide, up from 3.2% in the second quarter and 2.9% in the third quarter of 2022, according to Colliers’ 2023 Q3 Industrial Market report. Industrial vacancies are hitting double digits in some suburbs, which saw a pandemic-induced surge in new construction, the report notes.Specifically, “Woodbury, Cottage Grove, Apple Valley, Shakopee, Dayton, Ramsey, and Otsego are each facing vacancy of greater than 10 percent. Being the primary targets for new industrial developments, these municipalities have greatly increased their industrial capacity since the COVID-19 industrial boom,” the report states.But that doesn’t mean the market is being overbuilt, said Jesse Tollison, Colliers market research analyst for the Minneapolis-St. Paul market.“It’s not an overbuilt situation,” Tollison said in an interview. “It’s that space is so tight that users are looking at new construction almost exclusively. Those spaces that are available are often not suitable or not in a great location for the businesses. Most of the leasing activity we are seeing, a lot of absorption, is occurring in the new product. Essentially, things are being built and within a year or two they are being filled up entirely.”The biggest industrial development reflected in the report is the 1 million-square-foot The Cubes at French Lake, which rose on a 65-acre site at 11500 Lawndale Lake in Dayton.CRG, the Chicago-based real estate development and investment firm behind the project, describes The Cubes it as the “first super bulk inventory distribution facility in Minnesota” and the “largest speculative industrial project ever developed in the state,” as Finance &amp; Commerce reported in July 2022.During the third quarter, builders and developers delivered 4.84 million square feet of new industrial space, up from 1.2 million in the second quarter and 1.1 million in the third quarter of 2022, the report says. Meanwhile, 7.3 million square feet of space was under construction, down from 10.3 million in the second quarter and up from 6.1 million in Q3 2022.Colliers said the market absorbed 2 million square feet of industrial space in the quarter. Year-to-date absorption through the quarter is 3.8 million.Sales have slowed to a crawl, however. Noting that sales are happening “out of necessity rather than opportunity,” Colliers said capital markets activity is at about 20% of last year’s volume, a reflection of higher interest rates and tighter lending requirements. Colliers expects the capital markets to “remain sluggish” for the next 12 to 18 months at minimum.“While the Federal Reserve may eventually lower rates, banks are not expected to immediately adjust their conservative lending practices due to their significant exposure to commercial real estate. … We also expect an influx of receiverships and short sales as buildings return to lender. This could bolster transactional activity, although the long-term impact remains to be seen,” the report says.For its part, the office market continues to favor tenants.During the third quarter, the Twin Cities saw 1 million square feet of negative absorption, up from the previous quarter (-236,100) and the third quarter of last year (-482,800), according to the report. Overall office vacancy is 13.8%, up from 13.2% in the second quarter and 11.5% in Q3 2022. The report notes that only 35% of state employees have returned to the office, which adds “uncertainty” to downtown St. Paul.“The office market, from a leasing perspective, is still tenant-oriented,” Tollison said. “We are seeing landlord concessions in more creative ways. This can be more flexible square footage, flexible terms, striking relocation clauses in leases. We are seeing free rent structures throughout term rather than just at the beginning of term.”Tollison said some larger sublease transactions are popping up. During the quarter, for example, the market saw the first three 60,000-square-foot-plus sublease transactions since the pandemic, he said. Previously, the report notes, subleases have been limited to deals of 2,000 to 10,000 square feet of space for terms of two to five years.Roughly 382,000 square feet of office space is under construction, down sharply from the second quarter (595,900) and Q3 2022 (1 million).RELATED:Navigating a challenging CRE environmentMore deliveries of industrial buildings expected this yearWhere are the bright spots in the Twin Cities office and industrial markets?Share this!Artemis Real Estate Partners is in and Westminster Capital is out as an equity p[...]September 26, 2023Weidner Apartment Homes has been bargain shopping in Minneapolis of late with re[...]September 25, 2023The former LA Fitness center at 2420 Cleveland Ave. N. in Roseville is the lates[...]September 20, 2023The Minnesota Supreme Court ruled there was no ‘continuing violation’ of a w[...]September 20, 2023Minneapolis-based Sherman Associates says it has transferred ownership of NorSho[...]September 20, 2023Twin Cities home sales took another double-digit hit in August and prices contin[...]September 18, 2023Sign up for your daily digest of Minnesota News.See the full list of events hereRobust year for school projects on November ballotsHermantown plans 120-acre business parkTwin Cities industrial sector strong, despite rising vacancies, report showsCity wraps up $6.5M Bde Maka Ska pavilion rebuildU of M seeks building study proposals for Hormel InstituteThis fall alone, 44 districts are seeking voter support for everything from security and technology [...]Hermantown plans to transform a 120-acre site west of the Duluth International Airport into a new bu[...]Northwestern Mutual on Tuesday broke ground for its $500 million remodeling project of the North Off[...]Kraus-Anderson has completed a $99 million high school in Owatonna.The city of Minneapolis wants residents to weigh in on roadway and public space design concepts for [...]Xcel Energy said this week that several Upper Midwest energy companies have filed plans with the Min[...]After two years of receiving federal subsidies, 220,000 child care programs across the country were [...]A new, two building, 134,000-square-foot replacement is in the works for Lake Oswego Junior High Sch[...]Racine Kenosha Builders Association and Lakeland Builders Association are hosting up to 1,800 youths[...]Automakers posted big increases in new vehicle sales during the summer, despite high prices, rising [...]Finance &amp; Commerce names 2023 Top Women in Finance honoreesFinance &amp; Commerce’s Top Projects of 20222023’s Finance &amp; Commerce Reader Rankings Final WinnersTop Women in Construction 2023This website uses cookies to improve your experience while you navigate through the website. 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Skip to contentBrian JohnsonOctober 3, 2023The biggest industrial development reflected in Colliers’ Q3 Industrial Market report is the 1 million-square-foot The Cubes at French Lake, which rose on a 65-acre site at 11500 Lawndale Lake in Dayton. (File rendering: CRG)HomeNewsReal EstateTwin Cities industrial sector strong, despite rising vacancies, report showsThe biggest industrial development reflected in Colliers’ Q3 Industrial Market report is the 1 million-square-foot The Cubes at French Lake, which rose on a 65-acre site at 11500 Lawndale Lake in Dayton. (File rendering: CRG)Brian...

Twin Cities industrial sector strong, despite rising vacancies, report shows | Finance & Commerce

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