The tech industry has driven rental rates in the North Loop neighborhood of Minneapolis up more than 20 percent in two years, putting it in the top-10 fastest growing tech submarkets in the U.S, a new study found.
While Minneapolis-St. Paul has some distance to climb before it reaches the level of tech-job saturation experienced by many of its peers, this report by CBRE, the nation's largest commercial real estate company, measures the office growth-rate -- a indicator of potential.
The findings offer a real estate snapshot of the hottest submarkets within the 30 largest U.S. and Canadian tech cities. For the Twin Cities, that's the North Loop. And when stacked against its neighborhood equivalents in other cities, the trendy area northwest of downtown Minneapolis is looking hot.
For the last two years ending in June, North Loop's office rents have grown nearly twice as fast as the overall city's office rental rate of 10.7 percent. This puts it at the ninth fastest-growing tech submarket, behind San Francisco's SOMA but ahead of Austin's Northwest submarket.
“The North Loop is going through an interesting phase right now," said Tyler Kollodge, a CBRE broker based in Minneapolis. "The high demand and low vacancy rate has allowed landlords to push rental rates; however, most of the tenants in the area have been there for several years and are facing sticker shock when they see the new proposed rental rates on a potential lease renewal."
Meanwhile, the North Loop ranked fifth nationally for net absorption growth, at 8.2 percent.
What does this mean? There's high-demand among tech firms for brick-and-timber, exposed ceilings and generally nontraditional office space, which is a hallmark of the North Loop. The demand has led to low vacancy rates and created an environment ripe for new development.
Why tech? CBRE focused on high-tech software and services jobs because the sector has grown 34 percent since 2009 across the U.S. and accounted for one-fifth of all new office-using jobs.
As for the tech jobs themselves, Minneapolis ranked 18th out of 30 cities for overall high-tech job growth from second-quarter 2013 to the same quarter in 2015.
At the state level, however, the U.S. Bureau of Labor Statistics recently released a list of states that added the most high-tech jobs so far in 2015. To the surprise of many, Minnesota topped the list by jumping 8.3 percent in the first six months this year, bringing the total tech jobs to 37,600.