Commercial Real Estate Market Update Q3 2016
As 2016 comes to an end and the deep freeze arrives (I already feel like I need a warm weather vacation), the market for commercial real estate continues to do well. The downside is that we may be nearing the peak of the current cycle in both the office & industrial market.
The industrial market as a whole absorbed a little over 1,000,000 SF of space in the third quarter of 2016. Vacancy rates continue their downward trajectory and have fallen to approximately 7% in the metro area. However, a quick look at development trends suggest a peak may have been reached. Developers have clearly shifted from ‘spec’ development to ‘build-to-suit’ projects as demand has leveled off. What does this mean for Tenant & Buyers? Fewer choices and increased pricing. The biggest challenge for tenants today is finding ONE space that meets their needs. The one exception: Rogers & Dayton. If you need 50,000 SF or more in that market, you could get a very good deal.
The outlook for office market is following the same path. Office space in the North Loop remains hot and rents are increasing across the metro. Employers are continuing to re-evaluate their space to attract top talent. The trend is towards collaborative work spaces that include fewer private offices, more open space and buildings with worker-friendly amenities.
If you are looking to lease or buy, let us provide you with a free market analysis. We look forward to the opportunity to work with you on your next real estate project. Give us a call today!
What You Should Know About HVAC
It really depends on whether or not you sign a gross lease or a net lease. Typically in a net lease, tenants are responsible for the maintenance of their HVAC units. Some leases, depending on how they are written, will also make the tenant responsible for replacing the unit. Before you enter into a lease, fully understand whether it’s a net lease or a gross lease. If it’s a net lease, make sure the unit is in good working order and find out when it was most recently replaced.
Touring space? Know this…
What should you look for when touring commercial real estate? Yes, the proposed space is important, but consider these other factors.
With SF/person going down, does this building have enough parking? View tenant parking areas and compare it to the buildings occupancy. If the parking is full and only 80% of the building is full, you know you are in for some issues.
Don’t underestimate the need for sunlight. Getting cheap space with limited natural light may seem like a cost savings, but it will hurt you in the long run. Talented employees generally want assess to light as it will improve satisfaction with the job, increase productivity and help with overall health.
When comparing CAM, be very leary of the least expensive option. In the long run, not maintaining the property correctly will come back to bite you. Look for buildings with reasonable CAM, as they may provide additional amenities that may ultimately save you money (fitness centers, shared conference rooms, less SF)
Commercial Real Estate Bubble?
I often get asked “How are things going in the Commercial Real Estate market“? This is a tough question to answer. Yes, many people and many aspects of CRE is doing very well. However, a dark cloud is growing in the distance as the apartment building boom continues, institutional grade investment prices rise, and cap rates compress. My opinion is that we are nearing or already in a bubble…and I am not alone. U.S. Bancorp CEO Richard Davis “wants to hold the line on how much exposure the bank has to a market that he says often carries too much risk”. The key in this statement is too much risk with returns not justifying that risk. Low interest rates and a flood of cash being pumped into the system have made commercial real estate look attractive compared with bonds and other assets and have “drawn comparisons to the delirious boom of the mid-2000s” (Source WSJ). So where do we go from here? I don’t the answer. All I know is, we very rarely learn from past mistakes.
The Minneapolis Warehouse Space Market is Booming!
Oh how things have changed. It is finally good times for everyone involved with Industrial Real Estate in Minneapolis/St Paul. Over the last 12 months, there has been almost 2,000,000 SF absorbed in the overall market. Even with that surge in demand, vacancy rates have remained flat as developers were ahead of the curve and had a number of new speculative properties ready to accommodate new tenants.
Will this torrid pace continue? Developers, investors and brokers sure hope it will, but we do expect this going into 2016. We do expect the industrial real estate market to remain healthy and the following trends to continue:
- rental rates increasing
- cap rates lowering/flattening
- significant influx of investment capital looking at every available portfolio
- development community will continue building, filling, and selling their developments.
If you are in need of additional warehouse space, we can help. Please contact us today!
Office Space for Tech Companies
There was a recent article in the Twin Cities Business magazine describing the Minneapolis North Loop Office Market as one of the top growing office submarkets for tech companies in the US. This growth has caused rental rates to increase by over 20% in the last two years alone. This make sense as companies try to retain & attract talent by having well located, creative office space. This area will continue to grow through the development of new housing options and spec office buildings. If you are a growing tech company and would like to research office space in the North Loop, give a call today!
Water Gremlin Development
Water Gremlin called on CRE Partner to assist them with a site search for a new facility. The company needed more space and was uncertain if purchasing, leasing, or building was the appropriate solution. The goal was to find additional space and limit logistics costs.
The Water Gremlin project had numerous challenges. While they owned a land site next to their current facility, the soil conditions made building difficult. However, transporting their product is expensive and finding an existing building with the necessary floor load was very difficult.
CRE Partners worked with Water Gremlin on finding a suitable alternative for sale or lease in their general vicinity. After comparing the available options, the decision was made to build on their current site. CRE Partners helped establish a relationship with Anderson Companies, a general contractor, to provide development services. Anderson navigated the difficult soil conditions, worked closely with White Bear Township to create a 25-year tax increment financing (TIF) district, assisted with community approvals, like-facilities budget comparisons and financial package creation. Just prior to construction, an active bald eagle’s nest was discovered on the site. Anderson Cos worked closely with a US Fish and Wildlife biologist to secure the necessary permits while minimizing the impact to the eagle’s nest.