2012 Q1 CRE Market Update
Office CRE review
As predicted, we saw steady absorption of office space at the completion of Q1. We anticipate this trend will pick up in 2013. In addition, CBD Class A space in Minneapolis above the 18th floor is at historically low single digit vacancy rates. Target's commitment to 450,000 sq.ft. has generated significant deal traffic as their vendors and suppliers gobble up Class B product, decreasing these vacancy rates.
The suburban office market has not fully recovered despite significant transactions with United Health Group (70k sq.ft.), Wells Fargo (72K sq.ft.) and Vital Images (61k sq.ft.) taking up large vacancies the southwest market. Still this market has an abundance of Class A and B space to absorb.
The migration of Class B users to Class A space has slowed, strengthening the landlord's position at the negotiating table. Look for a continuation of lower vacancy rates, high absorption and rising rental rates as we approach equilibrium. We might see a new speculative downtown office building in 2013.
Industrial CRE review
Deal activity of well-located, high grade industrial product continues with speculative construction occurring in the northwest and planned in the Southeast. Landlords are now pushing rents which have been slowly rising over the past 18 months.
The following deals in Q1 pushed vacancy rates lower:
Delkor Systems - 113,000 square feet - Arden Hills
SanMar - 580,000 square feet - Shakopee build-to-suit
Cokem - 162,000 square feet - Shakopee
Compared to Chicago or Indianapolis, the Twin Cities is not considered a high density bulk warehouse market by investors or users. This said, a developer constructing a 32' clear 300,000 square foot facility with good access to the interstate will meet or exceed their proforma.
Like the office market, high absorption, lower vacancy rates and rising rental rates will continue throughout 2012. At the same time, Europe's recession will counter our domestic progress - albeit slowly.
*Information obtained from Cushman & Wakefield and Cassidy Turley
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