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Three Factors Driving Industrial Tenant Decisions (Part 2)

By Brent Masica and Hudson Brothen, Industrial Brokers

The Twin Cities industrial market has been among the strongest drivers of commercial real estate growth in the most recent economic cycle.

In fact, since the beginning of 2011, nearly 15 million square feet (sf) of multitenant industrial space has been absorbed throughout the Minneapolis-St. Paul market, according to Cushman & Wakefield’s Compass report. That number – which doesn’t include the several massive, recent build-to-suit projects accommodating only one tenant – makes up more than 14 percent of today’s multitenant universe.

With growth continuing at a frenzied pace, and the fight for labor getting more intense than ever, leasing has become competitive for both landlords and the companies using space. So what factors are attracting users to the most successful properties, and how can landlords leverage those factors?

This is part two of a blog series digging into recent trends in occupier decision-making.

Factor Two: The bottom line 

If your business is primarily in the Twin Cities, it makes sense to be near your customers. But if not, or if you’re running a large distribution or logistics operation and need a Twin Cities outpost, suddenly that location takes a backseat to cost.

Simply put, some users are more attracted to a lower rent than they are a top-tier location. In the most recent edition of our Compass report, we noted that Rogers, an exurb in the northwest Twin Cities, saw 500,000 sf of absorption in the second half of 2017 and could witness another 500,000 sf or more absorption in the first half of this year. That would be a dramatic turnaround for the market, which has been lagging behind the rest of a bullish industrial market for several quarters now.

So, what changed? Basically, congestion and lack of land availability in other submarkets made Rogers a cheaper option. While competition heated up in Shakopee and Brooklyn Park, asking rents fell in unoccupied Rogers properties, some of which were built speculatively.

Why does Rogers suddenly work? For a distributor, perhaps sending food or another product to the Dakotas, western Wisconsin, Iowa and other nearby markets, what’s another six or seven miles per drive if you’re paying $1.50 per square foot less – or maybe even more? That bottom line savings can be applied to anything from on-site amenities to employee pay and benefits, both of which can help attract the workforce you’re looking for.

We’ve seen that happen with FedEx, who’s occupying a large distribution center in Rogers, and will see a couple more tenants make similar decisions in early 2018. And once Rogers gets more competitive? You may see other outer markets with great interstate access start landing distributors.

Brent Masica

Hudson Brothen

Brent Masica and Hudson Brothen are industrial brokers in Cushman & Wakefield’s Minneapolis-St. Paul office. The two are part of a team specializing in industrial landlord and tenant representation, property sales and consulting. Visit their site at http://industrialmn.com.

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