Developers in the Twin Cities are building new industrial facilities – many of them speculative – at a record-setting pace.
Just ask John Ryden, a senior vice president and industrial specialist with the Minneapolis office of CBRE. He’ll tell you that the Minneapolis/St. Paul industrial market is busier than it’s ever been.
The Twin Cities industrial market is on track to see 5.1 million square feet of new construction this year, Ryden said. About half of this is spec construction, he said.
“We have very strong activity in this market today,” Ryden said. “In terms of net absorption and new construction, we are seeing record-setting activity. It’s nice to see, and it’s nice to be a part of it.”
Ryden said that the Twin Cities market had a net absorption of 2.3 million square feet of industrial space in the first half of the year. In 2013 and 2014, the same market saw a net absorption of 2.6 million industrial square feet for the entire year.
“So it looks like we are on our way to a record year for net absorption in the industrial market,” Ryden said.
Why are companies building their industrial facilities in the Twin Cities? Why are others finding unoccupied industrial space here and gobbling it up?
Ryden said that the Minneapolis/St. Paul market offers plenty of benefits for industrial users. The area’s workforce is a well-educated one, and the population here continues to grow. At the same time, the Twin Cities area enjoys a deserved reputation as being friendly to businesses, Ryden said. That plays a significant role in attracting new industrial users.
Even with the rising amount of spec construction in the Twin Cities, the Minneapolis/St. Paul industrial market has not seen a significant rise in vacancy levels, Ryden said. That’s a good sign that the demand for modern industrial space is still higher than the supply.
“To this point, the spec projects have filled up,” Ryden said.
Ryden expressed concern about just one submarket, the northwest bulk market. This market does have several large industrial vacancies. It also has several new projects coming online.
“That submarket is likely to get competitive,” Ryden said. “But otherwise, the new industrial projects have been filling pretty consistently.”
This industrial activity is happening even though many don’t view the Twin Cities market as being a major distribution hub. That’s because historically the Minneapolis/St. Paul market has distributed its products mostly to the five-state area of North Dakota, South Dakota, Minnesota, Iowa and the western half of Wisconsin.
That is steadily changing, though. More industrial users are opening distribution centers in the Minneapolis/St. Paul market, centers that Ryden would traditionally have been located in the Chicago area.
As in many thriving industrial markets, e-commerce is playing a significant role in the Twin Cities industrial sector. Amazon is a good example. The e-commerce giant has plans to open an 820,000-square-foot distribution center in Shakopee, Minnesota, and plans to hire more than 1,000 workers here. Amazon has also taken about 200,000 square feet of existing industrial space throughout the Twin Cities market, Ryden said.
“Right now, Amazon is the most noteworthy example of how important e-commerce is becoming to our market,” Ryden said. “But Amazon is not the only e-commerce company playing a big role here. We are seeing a significant rise in e-commerce companies targeting our area.”