Compass-Exe Summary 0714 r4northmarqcompass.com/.../CWNCompass_ExecutiveSummary_July2… · Title: Compass-Exe Summary 0714_r4.indd Created Date: 7/22/2014 1:09:15 PM

Helping You Navigate Today’s Commercial Real Estate Market

MINNEAPOLIS/ST. PAUL

JULY 2014

THE COMPASSEXECUTIVE SUMMARY

SALES VOLUME AND CAPITALIZATION RATES (Rolling 12-Mo. Total)

$0VO

LUM

E (B

ILLI

ON

S)

$0.5

$1

$1.5

$2

$2.5

$3

$3.5

$4

Real Capital Analytics, Inc.

JUNE ’04 JUNE ‘05 JUNE ’06 JUNE ’07 JUNE ’08 JUNE ’09 JUNE ‘10 JUNE ‘11 JUNE ‘12 JUNE ‘13 JUNE ‘14

$4.5

$5

Twin Cities Office, Industrial, Retail Properties

CAP RATEMARKET VOLUME

PER

CEN

T

6

6.5

7

7.5

8

8.5

9

9.5

10

10.5

11

8.48.2

7.1

6.77.0

7.8

8.7

7.8

7.57.37.3

Twin Cities Commercial Real Estate Market Remains Strong as Development Activity Levels Rise in Most SectorsThe Twin Cities commercial real estate market enjoyed continued success in first-half 2014 as the vacancy rate remained stable at 11.8%, which is equal to pre-recession levels. Further, the market recorded 384,000 square feet (sf) of positive absorption, pushing activity into the next-tier cities for land, residential and industrial sectors.

INVESTORS LOOKING FOR HIGHER YIELDS IN TWIN CITIES Commercial real estate investors are increasingly coming to the Twin Cities in search of yields higher than those available in larger, more expensive top-tier markets. Investor demand in the Twin Cities continues to chase multiple offerings in the market. The most in-demand product types include class A core office buildings in downtown Minneapolis and select suburban locations. Capital is also chasing apartment properties, grocery-anchored retail centers and modern industrial distribution buildings with minimal office finish.

MULTI-FAMILY MARKET DELIVERING UNITS AND RESULTSRoughly $230 million in apartment sales closed in the first half, and sale volume is expected to pick up significantly in the second half of the year. The market delivered 1,500 units so far this year, and another 5,000 are expected to open by year end. Another 3,000-6,000 are forecast for 2015. Many of the urban developments are benefiting from strong preleasing activity, which is helping them exceed their pro formas and open ahead of schedule.

DEVELOPMENT ACTIVITY IN MEDICAL OFFICE REACHES NEW HIGH Construction levels in the medical office market are the highest they have been since 2007. There are currently 14 medical office projects totaling 949,479 sf under construction and an additional 412,978 sf planned. Positive absorption is forecast for second-half 2014 as many of these new developments will come on line and are already preleased.

INDUSTRIAL SECTOR FOCUSED ON DISTRIBUTION NEEDSThe industrial market is seeing solid demand for high-clear, functional space as more companies expand and need distribution or manufacturing space. However, there is a lack of larger blocks of functional space, particularly bulk/warehouse product. Developers are starting build-to-suit and speculative developments. Twelve projects totaling more than 2 million square feet (msf) are underway—the most construction since the late 1990s. The market could see 700,000 sf of absorption in the second half for a total of 1.3 msf for 2014.

RETAIL MARKET AFFECTED BY GROCERS AND OUTLET STORESThe retail market held steady in the first half of 2014. The vacancy rate remained flat at 7.2%, which is slightly below 2008 levels. The market is bracing for a significant amount of change. Roundy’s exiting the market is expected to add more than 500,000 sf of negative absorption in the second half. At the same time, HyVee is planning 15-20 90,000-sf stores over the next few years, beginning in 2015, which will have a huge impact on the market. The new 409,000-sf Twin Cities Premium Outlets in Eagan will open in August, contributing approximately 390,000 sf of positive absorption in second-half 2014.

CLASS A OFFICE PROPERTIES REMAIN IN HIGH DEMANDIn the first half of 2014, demand for office space clearly favored high-quality properties. Class A space had a strong first half, posting a vacancy rate of 13.8% and some rent growth. The overall vacancy rate remained unchanged at 17.4%, which is still the lowest rate since 2009. Absorption dropped to negative 111,324 sf; however, four of the seven submarkets reported modest positive absorption during the

Submarket reports available at www.northmarqcompass.com


past six months. Modest leasing activity is projected for the balance of 2014 for class B and C assets. Approximately 75,000 sf of positive absorption is projected for the next six months, leaving the market with flat absorption for the year. LAND DEVELOPERS MOVING TO NEXT TIER Thanks to a healthy amount of activity among residential and industrial users during the past few years, available land in the first-tier markets is now scarce. Developers are looking toward a “new frontier” as they expand into previously passed-over territories, including St. Michael, Lakeville, Lake Elmo, Otsego, Hudson, Brooklyn Park and beyond. As developers push into new markets in the greater metropolitan area, cities will play a key role in whether projects move forward.

OUTLOOKThe U.S. economy added 288,000 jobs in June, making it the fifth consecutive month that employment growth has exceeded 200,000. This marks the first time since 1999-2000 that the U.S. economy has generated such sustained strong job growth. This is great news for the commercial real estate sector. More than 2.9 msf of space is expected to be added to the overall market in second-half 2014 thanks to multiple industrial, medical office and retail projects currently under construction coming on line. If the majority of the completion dates are met, the Twin Cities will enjoy its highest historical construction level since 2007.



More information by submarket and/or product type, including:

• Vacancy, absorption and rental rates

• Transaction and Investment sale activity

• Projections for the next 6-12 months

MORE ONLINE

INDUSTRIAL ABSORPTION, CONSTRUCTION AND VACANCY

(3)SQU

AR

E FE

ET (

MIL

LIO

NS)

(2)

(1)

0

1

2

3

4

5

(4)

0

4

8

12

16

PER

CEN

T V

AC

AN

T

(8)

(12)

0.43

1.24

3.77

1.09

2.16

0.93 0.89

1.72

0.881.04

(2.38)

0.04

15.5

13.0 13.011.9 12.0

15.2

2016.4

(0.71)

0.00

16.1

0.61

0.00

ABSORPTION CONSTRUCTION VACANCY

Source: Cushman & Wakefield / NorthMarq

‘04 ’05 ‘06 ’07 ‘08 ’09 ‘10 ’11 '12 '13 '14 JUNE

10.6

12.8

10.82.51

0.270.620.69

1.92

0.30

OFFICE ABSORPTION, CONSTRUCTION AND VACANCY



0

1

2

3

4

5

SQU

AR

E FE

ET (

MIL

LIO

NS)

(1)

(2) PER

CEN

T V

AC

AN

T

0

4

8

12

16

20

(4)

(8)‘04 ’05 ‘06 ’07 ‘08 ’09 ‘10 ’11 ‘12 ‘13 ‘14 JUNE

18.9 18.316.1 15.2 15.9

19.6

15.2

19.919.2

0.520.23

1.47

0.18

1.35

0.16

0.95

(0.15)

0.33 0.52

(0.00)0.00

0.480.00

(1.83)

0.60

18.0 17.4 17.4

0.97

0.02

(0.11)

0.00

0.62

0.00

5.5 11

5 10

SQU

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ET (

MIL

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(.5)

0

.5

1

1.5

2

2.5

3

3.5

4

4.5

PER

CEN

T V

AC

AN

T

0

1

2

3

4

5

6

7

8

9


(1)


(0.05)

1.33

2.35

3.105.73.17

1.31

2.04

7.8

6.3

2.90

6.9

0.37

0.93

7.9

10.1

1.12

(0.20)

9.8

0.170.26 0.33

0.69

0.18

8.4

RETAIL ABSORPTION, CONSTRUCTION AND VACANCY

‘04 ’05 ‘06 ’07 ‘08 ’09 ‘10 ’11 ‘12 ‘13 ‘14 JUNE

8.3

7.2 7.2

0.40

0.90

0.32

(0.12)

0.14

ABOUT CUSHMAN & WAKEFIELD | NORTHMARQ

Cushman & Wakefi eld | NorthMarq manages more than 42 million sq. ft. of retail, industrial and offi ce assets, completes more than $1 billion in transactions annually and employs more than 450 professionals. Through its partnership with Cushman & Wakefi eld, the company provides innovative solutions to its occupier and investor clients within the Minneapolis/St. Paul region and around the world, offering Transaction Services, Capital Markets Services, Occupier and Investor Services and Real Estate Advisory.

3500 American Blvd WestSuite 200Minneapolis, MN 55431 [email protected]


Market Quick Facts

TWIN CITIES LABOR FORCE, EMPLOYMENT & UNEMPLOYMENT

1.6

1.65

1.7

1.75

1.8

1.85

MIL

LIO

NS

Source: Minnesota Department of Employment and Economic Development

PER

CEN

T

EMPLOYMENT LABOR FORCE UNEMPLOYMENT RATE

1.9

1

2

3

4

5

6

7

8

9

4.7

3.9 3.74.5

5.2

8.5

7.3

6.8 5.85.2

JUNE ’04 JUNE ‘05 JUNE ’06 JUNE ’07 JUNE ’08 JUNE ’09 JUNE ‘10 JUNE ‘11 JUNE '12 JUNE '13 MAY '14

4.0

LOCATIONThe “Twin Cities” of Minneapolis and St. Paul form the core of a metropolitan region encompassing 6,046 square miles and consisting of 13 counties: Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, Washington, Isanti, Chisago, Sherburne and Wright in Minnesota, as well as Pierce and St. Croix counties in Wisconsin.

Forbes magazine identifi ed the Minneapolis-St. Paul metro area as one of its “Best Places for Business and Careers” in the U.S., ranking it 23rd among the nation’s largest metros. (Forbes, 2013)

HOUSING PRICESThe Twin Cities median single-family home price (as of second-quarter 2014) is $185,500 compared with $172,500 in second-quarter 2013.(Minnesota Association of Realtors)

BUSINESS STRENGTHSMajor business strengths in the Twin Cities include a highly educated workforce, excellent transportation services, a diverse economic base and available capital. The metro area is home to 19 Fortune 500 companies representing a broad spectrum of industries. The Minneapolis-St. Paul area’s employment base does not rely on any single industry, which allows it to weather recessions and economic downturns in specifi c industries.

Minnesota was rated the sixth top state for business by CNBC’s “Top States for Business” in 2014. This rank was based on the cost of doing business, workforce, transportation and infrastructure, education, access to capital and quality of life.

TWIN CITIES NATIONAL

4.0% 6.1%

UNEMPLOYMENTRATE

As of May 2014

Source: Minnesota Department of Employment and Economic Development (MN DEED)

ABOUT THIS REPORT: The Compass report was created by Cushman & Wakefi eld | NorthMarq experts using Twin Cities commercial property data from the fi rst six months of 2014. The data used for this report has been obtained from sources which we deem reliable. While every effort has been made to report accurate data, Cushman & Wakefi eld | NorthMarq cannot guarantee the accuracy of this market report. Furthermore, we cannot assume responsibility for any omission of data which may occur. It is our intent to provide the best possible information regarding the offi ce, industrial, land, retail, multi-family and investment markets while leaving the reader the responsibility of further verifi cation before using this report for business and/or fi nancial decisions.

The Compass report includes information for multi-tenant offi ce, industrial and retail projects greater than 20,000 sq. ft. and multi-family for-rent properties. Not included are owner-occupied, government or single-tenant buildings. Not all information and insights we’ve collected can be published in any given volume.


Documents

Compass-Exe Summary 0714 r4northmarqcompass.com/.../CWNCompass_ExecutiveSummary_July2… · Title: Compass-Exe Summary 0714_r4.indd Created Date: 7/22/2014 1:09:15 PM