by Dan Rafter
The retailers are following the people. That’s why so many new shops are opening in the downtowns of Midwest cities today.
Retailers need shoppers. And a growing number of the most valued shoppers — young adults under the age of 35 — are moving into the downtowns of cities such as Chicago, Indianapolis, Columbus and Louisville.
And Minneapolis/St. Paul, of course.
In its second quarter retail report, Marcus & Millichap reported that the Twin Cities is now in the middle of a strong retail recovery, especially in the urban core of Minneapolis.
The numbers are impressive: Marcus & Millichap reports that 1,600 apartment units have come online in downtown Minneapolis during the last two years. And during the next several years, developers are expected to bring 2,500 more apartments to the heart of the city.
Many of these new apartment projects will boast ground-level retail. The apartments themselves, dotted with modern amenities, are attracting higher-paid tech and creative workers, according to Marcus & Millichap. They are also attracting downsizing Baby Boomers who are eager to live the urban lifestyle.
There has been plenty of retail activity in downtown Minneapolis to meet the growing demand from new residents. Walgreens has signed a lease for a two-level store in Gaviidae Common. Saks Off 5th has signed a lease for the former Office Depot location in City Center, and will take occupancy here in 2016.
Construction crews will later this year start a renovation of the city’s Nicollet Mall. And retailers such as Dunkin’ Donuts, HyVee and Aspen Dental are filling vacant space in downtown Minneapolis.
Not surprisingly, vacancy rates have fallen in this market. Marcus & Millichap reports that retail vacancy rates throughout the Minneapolis market should fall by 30 basis points to 5.4 percent this year. About 1.3 million square feet of retail space should be absorbed during the year.
Asking rents should rise, too. Marcus & Millichap predicts that the average asking rent for retailers should climb 2.6 percent to $14.45 a square foot by the time 2015 ends.
Construction crews have been busy in the retail sector in the Minneapolis market, too. Marcus & Millichap’s report says that 80,000 square feet of retail space was added to the market during the first quarter of 2015. The most significant recent retail project completed during the last year is the 441,000-square-foot outlet mall in Eagan.
The biggest retail projects that should wrap up this year are a pair of 90,000-square-foot Hy-Vee stores. The grocer will open stores in the New Hope and Oakdale regions. Hy-Vee isn’t through expanding, though; The retailer plans to begin construction later this year on stores in the Brooklyn Park and Lakeville neighborhoods.
In all, Marcus & Millichap predicts that 800,000 square feet of retail space will be added to the Minneapolis market this year. That’s a bit of a dip from the 1 million square feet of retail that joined the market last year, but it’s still a significant amount of new construction.