Q1 2025 Minneapolis-St. Paul Industrial Market Summary

Twin Cities industrial market enters 2025 with sustained momentum in absorption and decreasing vacancy

By: Erik Nordstrom, Senior Associate-Real Estate Advisory provides insight to the Twin Cities industrial market report provided by MNCAR/REDI.

The Twin Cities industrial market demonstrated resilience in 2024, despite some moderation compared to the previous year. The market, comprising 298 million square feet (msf) of industrial space, ended the year with a vacancy rate of 5.2%, following a strong fourth quarter that saw 1.3 msf of absorption. Total absorption for 2024 reached 3.2 msf, which, while robust, fell short of 2023’s performance by over 1 msf. The bulk warehouse sector, characterized by properties with 32′ clear height and above, led the market with just over 3 msf of absorption.

Submarket Performance
The northwest and southeast submarkets were the primary drivers of positive absorption in Q1 2025, while the southwest submarket has seen a flood of space available for sublease hit the market.

• • • Northwest: 829,562 square feet (sf) of positive absorption
    • Southeast: 521,112 sf of positive absorption
    • Southwest: (290,058) sf of negative absorption

Submarket Performance
As of Q1 2025, there was 2.96 msf of industrial development under construction with Build to Suits accounting for over 80% of projects currently under construction.  The speculative development market in the Twin Cities has tapered compared to the US as whole, emphasizing the market’s historical conservative approach to speculative development. Volatile interest rates over the last few years have led to a declining number of developments under construction, but as demand for industrial space remains high, and interest rates appear to be stabilizing, there could be an uptick in developments built for tenants who can afford new construction lease rates.

Despite global economic uncertainties, including the effects tariffs will have on the economy, the Twin Cities industrial market remains resilient and cautiously optimistic. Low vacancy rates; continued demand for industrial space; and subdued development activity; continue to push rent growth and declining landlord concessions.   Tenants looking to relocate or renew will need to navigate a competitive landscape, with limited options in certain submarkets and property sizes.

Q1-2025 Minneapolis-St. Paul Industrial Market Summary

ECONOMIC OVERVIEW:

According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) increased 20 basis points to 3.5% for February 2025 from 3.3% for February 2024. The unemployment rate for the US was at 4.1% in February 2025 increasing 20 basis points from last year. State of Minnesota unemployment rate was 3.0%. The Mpls-St Paul MSA saw an increase in job growth and industrial specific jobs increased in job growth in manufacturing by 700 during the same period.

MPLS-ST. PAUL AREA EMPLOYMENT STATS:

MARKET OVERVIEW:

The Mpls-St Paul industrial market consists of 298.7 msf in eight counties across the metro. Overall, there was 969,900 sf of positive absorption for Q1 2025, bringing the YTD to 969,900 sf positive absorption. Multi-tenant only properties posted 1.2 msf positive absorption bringing the rate for the quarter was 4.9% and multi-tenant properties vacancy rate was 7.1%. To date, there are 24 construction projects throughout the market totaling 2.9 msf and 7 properties have been delivered this year with 389,800 sf.

MARKET HIGHLIGHTS:

The West market showed the lowest vacancy rate of 3.3% while the Southwest market is at the top with 7.4% for all properties. The Northwest bested all markets with 829,500 sf positive absorption led by States Manufacturing leasing 502,900 sf. The Southwest market posted the most in negative absorption of (290,000) sf led by Murphy Warehouse vacating 172,400 sf. At the close of Q1 2025, the market experienced 2.6 msf of leasing activity in 212 transactions. One hundred one properties sold totaling 5.7 msf for $567.3 million.

MARKET MAP:

Q1 2025 Industrial Market Report is created by Minnesota Commercial Real Estate Association. For more information, you can reach them at: www.mncar.org

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