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MARKET REPORT I AUGUST 2015 1 INDUSTRIAL I MINNEAPOLIS -ST. PAUL <br />SOUTHWEST <br />The vacancy rate in the Southwest submarket is 10.0 percent, <br />down from 11 percent at Quarter One. Absorption was 211,197 <br />square feet, bringing the year-to-date total to 406,265 square feet. <br />Generally, the lease market in the Southwest has become more <br />favorable to landlords compared to this time last year. Our <br />submarket experts note today's "average" lease being executed for <br />bulk warehouse space are for terms between five to 10 years, <br />versus three to seven year deals that were most common in 2014. <br />Also, the spread between asking rents and actual rents has <br />narrowed in the last 12 months, with most contract rates landing at <br />90+ percent of quoted asking rates. Tenant improvement <br />allowances on existing buildings are averaging $245 PSF on <br />warehouse space, and $20 PSF for associated office space. For <br />new construction buildings, the tenant improvement allowance on <br />the warehouse space averages $5 PSF and $50-$75 PSF for <br />associated office space. The renewal lease market has also <br />improved in the Southwest over the last several quarters. The <br />practice of "rolling back" a tenant's rent upon renewal to a lower <br />base rent has abated, and today, the most common renewal <br />structure includes a first year rent equal to the existing rent, with <br />2.5%-3.0% annual escalations. Additionally, we are seeing <br />showroom space in the 25,000 SF range capture most of the <br />leasing activity in this submarket, while the bulk distribution assets <br />in the submarket are lagging. <br />The Southwest is currently the most active industrial submarket in <br />the Twin Cities. In addition to Amazon's Shakopee plans, several of <br />the projects that were under construction during the last half of <br />2014 have been completed; including Ryan Companies' 135,000 <br />square foot, $12.OM innovation center for Bayer CropScience in <br />Shakopee. Bayer has been a tenant in the Shakopee area since <br />2000 and considered other places to build the center, but ultimately <br />chose to stay in the area due to its skilled workforce, and because <br />Minneapolis is a convenient transportation hub for the company's <br />expanding international market. <br />Also in Shakopee, Kin Properties has found a tenant for the former <br />K -Mart distribution center, which it acquired vacant in 2013 and <br />renovated to add cross docking capabilities. Polaris Industries <br />announced they will lease about 850,000 square feet of the 1.1 million <br />square foot facility, consolidating operations and moving employees <br />from existing distribution centers in St. Paul. <br />Planned construction projects in the submarket are highlighted by <br />Opus' announcement that they plan to construct a 216,000 square foot <br />(expandable to 362,000 SF) office and warehouse build -to -suit for <br />AmerisourceBergen. Construction of the new facility is expected to <br />start later this summer, and will take 18 to 24 months to complete. The <br />project is planned for an undeveloped 20 -acre parcel in the Valley Park <br />Business Center in Shakopee. If approved, the new facility will be next <br />to the Emerson Process Management factory that opened last year in <br />the former ADC Telecommunications Inc. building. <br />COLLIERS INTERNATIONAL I MINNEAPOLIS -ST. PAUL <br />