The January 2018 edition of Compass is now live!
As the race to Super Bowl LII heats up, the global spotlight has turned to the Twin Cities. This special issue of Compass includes not only award-winning commercial real estate market intelligence but also Super Stats, an infographic report detailing the big game’s effect on Twin Cities commercial real estate.
Highlights from this issue
The last half of 2017 saw steady demand and improving economic fundamentals continue to drive a healthy Twin Cities commercial real estate market.
At year-end, the market recorded a 10.8% overall vacancy rate and 2.3 million square feet (sf) of positive absorption. The market delivered 2.58 million sf of new construction in 2017, the second-highest number recorded since the end of the last recession.
Highlights by property type:
- The Retail market braved a new environment. Demand for new space remained competitive in retail, even amid a lengthy list of national retailers closing or declaring bankruptcy. Competition is already happening for many vacant big boxes, with most being divided up for multiple smaller users.
- The Industrial market surged forward. Despite the second-highest total of new construction hitting the market over the past decade, the industrial vacancy rate didn’t budge. That was driven by 1.66 msf of new absorption, well over what had been projected. Strong absorption is expected to continue in 2018.
- The Multifamily market defied gravity. Absorption outpaced new construction in 2017, even with 3,500 new apartment units delivered to the market. Even with approximately 15,000 units delivered between 2013 and 2016, the vacancy rate for apartments metro-wide has stood pat at 2.5%. However, 2018 could be a big test year for landlords – 5,000 apartments are projected to open during the year.
- Investors kept chasing desirable properties. $4.54 billion in commercial and multifamily sales closed in 2017, barely a move from 2016’s $4.6 billion. Investors showed willingness to bid on assets that meet their investment strategies, seeking out both steady cash flow and value-add opportunities. A number of noteworthy transactions are expected to close in the first part of 2018, giving the year another strong start.
- Medical Office stayed steady amid uncertainties. Construction continues at strong levels in the Medical Office market, with health systems evolving to meet patient needs and locate more facilities in easy-to-access locations.
- The Hotel market cooled, as expected. Average occupancy dipped to 69.2%, signaling a cooling to the hotel market’s seven-year hot streak. The slowdown is primarily due to the flood of new rooms hitting the market. Approximately 3,900 rooms were delivered this cycle, and around 3,000 more are in some stage of development.
- The Office market stayed on course. The year ended with modest absorption in the office market. Companies are relocating, expanding and trading into more efficient space, but some space has come back into the market due to downsizing or consolidation into single-tenant projects not measured in the multi-tenant statistical universe. Rates have remained healthy relative to vacancy rates, but their growth is leveling off except for buildings with plenty of character or amenities located in desirable locations.
- Residential and Industrial kept the Land market humming. In a theme consistent with previous reports, industrial and single-family developers continue to drive much of the demand in the land market. Homebuilders are aggressively seeking out positions in excellent school districts, and industrial developers are seeking bigger sites to accommodate the expanding eCommerce distribution and fulfillment business.
Projections for the first half of 2018:
- 1.5 msf of Absorption, primarily in the Industrial sector
- 1.3 msf of new Construction
- Significant sales transactions will close early in the year, particularly in the Office sector
About The Compass Report
Compass is an award-winning research report that provides exclusive market research and insight on commercial real estate in the Twin Cities. This report provides an in-depth analysis of commercial real estate conditions in the Minneapolis-St. Paul metro area for the office, industrial, retail, medical office, hotel, land, multifamily leasing and investment sales markets.
Published bi-annually, the report provides a market recap of the past six months, as well as an outlook for the coming six.
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