• Minneapolis

What the top 60 industrial leases of 2018 teach us about CRE in the Twin Cities

By Cushman & Wakefield Research

The industrial sector has been at the forefront of this commercial real estate cycle. Especially in areas with strong visibility and easy access to major highways, what had been undeveloped land is seeing building after building pop up, with such features as 32-foot clear ceilings, dock doors and more. But what factors are behind the industrial movement? We broke down the 60 largest leases from 2018 to find out:

Manufacturing is making waves

Nearly a third, or 19 in all, of the largest leases in industrial buildings were signed by manufacturing companies. That spans all sorts of products – apparel, paper, metal, even medical devices. In all, some 1.43 msf (out of about 4.7 msf in 60 deals) was occupied by those manufacturers, making those companies some of the largest movers and shakers in not just the industrial world, but Twin Cities commercial real estate overall. Wholesale companies (1.02 msf) and retailers (1.07 msf) also made waves in the industrial space in 2018.

The Northwest continues to drive the most activity

The Northwest industrial market – particularly Rogers, Plymouth, Maple Grove and Brooklyn Park – continued to play the biggest role in industrial leasing in 2018. 24 of the 60 leases (40 percent) were located in the northwest, totaling 2.5 million square feet, more than half of the 4.7 msf tracked in the study. Rogers and Brooklyn Park themselves accounted for 13 leases. The next-busiest market was the Northeast, which saw 1.2 msf over 18 leases.

A big year for moving companies

The vast majority of the largest leases in the industrial world were not renewals, meaning most of these deals included either a consolidation or relocation. Companies continued to show interest in newer, more modern-designed buildings with high ceilings and top-of-the-market amenities. In all, about 4.1 msf out of 4.7 msf we tracked was in transactions that were not renewals or expansions of existing leases. That means just 584,000 sf (our about 12.5 percent) of transactions meant a company staying put.

Distribution and office-warehouses split the balance

The two most-leased property types ran away with the balance of activity in 2018, totaling 53 leases (29 in warehouses and 24 in office-flex buildings) for 4.3 msf (2.5 msf of that in warehouses). That means that just shy of 92 percent of the largest leases were signed for one of those two property types. Our third property type, high-tech, saw only six of the top 60 leases.

The largest spaces were in the west.

Despite the small sample size, there was a significant disparity in the average size of leases between markets and submarkets. The 24 leases in the Northwest, for instance, measured an average of 104,395 sf. On the city level, three of the four cities with an average lease size of more than 100,000 sf (Brooklyn Park, Plymouth, Rogers) are in the Northwest. Among the other submarkets, none averaged more than 66,000 sf, and only three cities (Bloomington, St. Paul and Savage) averaged more than 80,000 sf per lease.

Higher ceilings ruled the day

Mirroring trends in new development of late, tenants were primarily drawn to buildings with higher ceiling clear heights. 19 tenants totaling 1.77 msf leased buildings with 32-foot-clear heights or taller, while another 20 companies totaling 1.74 msf leased at properties between 24 and 30 feet clear. That’s 75 percent of all transactions, and what’s more, 54 percent of space was leased in buildings with at least 28-foot ceiling heights. One thing to keep an eye on: Higher ceilings tend to mean more need to trailer parking, which is emerging as a key amenity for many users.

The newest buildings were popular, but not the most popular

Industrial development has been incredibly active in Minneapolis-St. Paul over the past several years, drawing existing tenants from all over the metro, as well as new tenants to the market. That might lead you to expect new buildings to drive most of the leasing action, but in 2018 that wasn’t the quite the case. 11 of the 60 tenants we tracked chose buildings constructed since 2017, making up about 22 percent of all square footage in our tracked database. But even more tenants signed leases at buildings constructed during the 1990s – 14 in all, also totaling 22 percent of all square footage. Construction from the 1990s was likely so popular because that was the era where 24-foot clear buildings really took off. Those properties, while older, are still really functional for a wide range of users.

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