Industry panel: Office and Industrial sectors expected to stay busy in 2017

October 28, 2016 at 10:27 am


The industrial and office markets should continue to be busy over the next year or two, according to a panel of commercial real estate professionals who spoke this month.

At “Riding the Wave: What’s Next?”, an event hosted by Minnesota NAIOP in conjunction with MNCREW, MNCAR, the Minnesota-Dakotas Chapter of CCIM and SIOR, eight industry leaders took a look at key trends and existing demand in the office and industrial markets today, as well as giving a packed Hopkins Center for the Arts an idea of what may be yet to come.

In the industrial world, the market continues to chug ahead, although not with quite as much velocity as in the past two years. The Twin Cities area has seen 2.2 million square feet of positive absorption in 2016 to date, close to the 3 million of so square feet absorbed in 2015. Experts expect the year-end total to end up around the same.

New construction this year should end up around 2.4 million square feet, well short of 2015’s 4.8 million square feet but also well ahead of the 1.85 million square feet built in 2007.

“The market today is a very solid good,” said Matt Oelschlager of CBRE. “It’s not great, or exceptional, but it’s far from being dead.”

Overall vacancy sits at 8.7 percent, according to MNCAR data, with the light industrial market especially tight at 5.6 percent.

Brokers in the industrial sector say that demand has grown for build-to-suit properties, where tenants have more say over construction costs, building features and design, among other things. Eric Rossbach of Colliers International MSP also noted that tenants are paying close attention to access to labor, public transportation and proximity to amenities.

Moderator Tim Elam of Scannell Properties also noted that LED lighting is becoming more popular, with the lights paying for themselves sometimes as quickly as a year after installation.

In the investment market, Minneapolis-St. Paul continues to attract investors.

“We’re on offense,” said Mark Kolsrud of Colliers. “Minneapolis has proven itself to be a primary secondary market.”

On the office side of the business, panelists agreed things are complicated, according to moderator Eva Stevens of United Properties.

Vacancy sits at 15.3 percent overall, well below recession levels. Absorption remains negative at 81,000 square feet, largely due to corporate headquarters moves by Wells Fargo and Xcel Energy. But on a positive note, rents continue to rise across all classes.

The market continues to see employers pitted against each other to attract and retain the top workers available. Tenants are creating more amenities and trying to “make a statement” with their space more than ever, according to Erin Wendorf of Transwestern. Downtown Minneapolis has remained attractive for many relocating companies.

“The war for talent is only going to get more intense,” Wendorf said, adding that companies are starting to realize that it may be less expensive to invest in top-notch space if it helps retain employees. The average cost to replace an employee falls somewhere between $1 and $10 per square foot.

Steve Shepherd of Colliers and Wendorf each noted that Human Resources directors now attend more showings that they had in the past, a strong signal that space is important for company culture.

Many companies have moved inward to downtown Minneapolis or St. Paul in recent years, but Shepherd also noted that the suburban market remains attractive for companies who wish to locate close to their executives’ homes. Household incomes skew higher, especially in the western suburbs.

In the Capital Markets, investors continue to look at different opportunities, according to Avery Ticer of Cushman & Wakefield NorthMarq. Ticer said investors view Minneapolis-St. Paul as a stable market, and many markets have remained active for property sales.

“We may have the three best St. Paul assets trade in the same calendar year,” Ticer said. “…Investors now have to learn more than a few important intersections.”

-Adam Voge


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