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Tech firms drive North Loop rent rates up 20 percent in two years

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.

source: CBRE Tech-Thirty 2015

source: CBRE Tech-Thirty 2015

“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. 

U.S. construction spending hits post-recession high

Photo: Leila Navidi/Star Tribune, June 2, 2015.

Photo: Leila Navidi/Star Tribune, June 2, 2015.

U.S. construction spending hit a new post-recession high in July, reinforcing the industry's position as a pillar of the economy.

Total construction activity rose in July to a seasonally adjusted rate of $1.08 trillion, a 0.7 percent increase from the revised June spending of $1.07 trillion, according to data released Tuesday by the U.S. Census Bureau.

While month-to-month construction spending can be unreliable for drawing longterm trend, the growth has been consistent throughout the year. Actual spending in the first seven months of 2015 grew 9.3 percent compared to the same period in 2014. This is the highest level in more than seven years.

The Commerce Department data captures the cost of labor, materials, architectural and engineering work, interest and taxes, overhead costs and contractors' profits.

Private nonresidential construction led the way, accounting for $407 billion in activity -- a 1.5 percent change over the revised June estimate and more than 18 percent over the same month last year. Private residential, which includes multifamily complexes and single-family homes, rose 1.1 percent compared to the revised June estimate and by 15.6 percent compared to July 2014.

Total public spending dropped in July by 1 percent, but has increased 6 percent during the first seven months of 2015 compared to the same period last year. 

In the past 12 months, total construction spending has risen 13.7 percent.