MARKET INSIGHT POST

Q3-2023 Minneapolis-St. Paul Industrial Market Update

Q3-2023 Industrial Market Report created by Minnesota Commercial Real Estate Association. For more information, you can reach them at: www.mncar.org

Forte Principal, Phil Simonet, provides insight to the Twin Cities industrial market report recently released by MNCAR/REDI.

The overall Twin Cities industrial market remains exceptionally healthy with low vacancy rates, recording breaking net rates, and good net absorption when factoring in the new product brought online during 2023. Q3 2023 had net absorption of 1.68M square feet with YTD net absorption of 3.15M square feet. Q3 2022 experienced net absorption of 2.2M square feet and YTD net absorption of 4.8M square feet. The 2023 vacancy rate for all industrial product types totals 4.3% up 1.0% from Q3, 2022. By Individual product type, Flex, Distribution and Office Warehouse, vacancy rates at the end of Q3 2023 are 7.0%, 4.5% and 3.3% respectively. If single tenant product is removed from the industrial universe, vacancy rates increase to Flex-8.7%, Distribution-7.6% and Office Warehouse-4.9% with an overall vacancy rate of 6.7%. The higher vacancy rate is a result of slightly less net absorption and newer product coming online during 2023 than 2022 (4.178M in 2022 versus 5.7M in 2023).

Other notable market characteristics:

Two significant areas to watch are the East Metro (Woodbury, Lake Elmo) area where over 1.2M square feet of spec construction has come online and with little absorption of any of the new space. Cottage Grove as an untested multi-tenant market with over 1M square feet of new development and, to date, very little absorption mirrors the East Metro.

2. Interest rate increases over the past year+ and the corresponding negative effect on CAP rates have had an impact on speculative construction (less spec) and will likely help to maintain a healthy equilibrium of new construction versus absorption.

Q3-2023 Minneapolis-St. Paul Industrial Market Update

MARKET RECAP:

All Properties:

Total Inventory: 285,735,118 sf

Total # of Buildings: 3,243

Absorption: 1,682,078 sf

Vacancy: 4.3%

Asking Rate Low: $7.63 NNN

Asking Rate High: $10.64 NNN

Under Construction: 7,601,163 sf

Multi-Tenant Properties

Total Inventory: 150,933,430 sf

Total # of Buildings: 1,822

Absorption: 955,422 sf

Vacancy: 6.7%

Asking Rate Low: $7.62

Asking Rate High: $10.68

ECONOMIC OVERVIEW:

According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) increased 50 basis points to 3.2% for August 2023 from 2.7% for August 2022. The unemployment rate for the US was at 3.8% in August 2023 increasing 10 basis points from last year. State of Minnesota unemployment rate was 3.1%. The Mpls-St Paul MSA saw an increase in job growth and industrial also increased in job growth specifically in manufacturing by 900 during the same period.

MPLS-ST. PAUL AREA EMPLOYMENT STATS:

MARKET OVERVIEW:

The Mpls-St Paul industrial market consists of 285.7 msf in eight counties across the metro. Overall, there was 1.68 msf of positive absorption for Q3 2023, bringing the YTD to 3.15 msf positive absorption. Multi-tenant only properties posted 955,000 sf positive absorption bringing the YTD to 1.72 msf positive absorption. The overall vacancy rate for the quarter was 4.3% and multi-tenant properties vacancy rate was 6.7%. To date, there are 49 construction projects throughout the market totaling 7.6 msf and 29 properties have been delivered YTD with 5.67 msf.

MARKET HIGHLIGHTS:

At the close of Q3 2023, the market experienced 2.7 msf of leasing activity in 186 transactions. The Northeast market shows the lowest vacancy rate of 2.7% while the Southwest market is at the top with 5.7% for all properties. The Northwest bested all markets with 799,000 sf positive absorption led by the new delivery of 248,000 sf for nVent . The Northeast was the only market to post negative absorption of (69,000) sf led by Breakthru Beverage vacating 140,000 sf. Seventy nine properties sold totaling 2.9 msf for $303.7 million.

MARKET STATISTICS BY PROPERTY TYPE

Multi and Single Tenant:

Q1-2023 Market Statistics by Property Type (Multi & Single Tenant) Graph

VACANCY RATES BY MARKET

Multi and Single Tenant:

Q1-2023 Vacancy Rates by Market (Multi & Single Tenant) Graph

LEASE RATES BY MARKET

Multi and Single Tenant NNN:

Q1-2023 Lease Rates by Market (Multi & Single Tenant NNN) Graph

MARKET STATISTICS BY PROPERTY TYPE

Multi Tenant:

NEW DEVELOPMENTS BY MARKET:

YEAR-TO-DATE DELIVERIES BY MARKET:

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Industrial Market Experts

Phil Simonet

Principal

Phil.Simonet@ForteREP.com

John Young, CCIM

Vice President

John.Young@ForteREP.com

Dan Lofgren

Vice President

Dan.Lofgren@ForteREP.com

Joe Jetland

Senior Associate

Joe.Jetland@ForteREP.com

Erik Nordstrom

Senior Associate

Erik.Nordstrom@ForteREP.com

Fred Hedberg, SIOR

Senior Vice President

Fred.Hedberg@ForteREP.com

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