Demand for industrial space in Twin Cities kicks into gear

Article by: JANET MOORE , Star Tribune
Updated: July 25, 2012 - 7:34 PM

But a new report says some uncertainties are still on the horizon.

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The Twin Cities' industrial real estate market -- hit hard in the Great Recession -- continued to show signs of recovery in the first half of 2012, according to a report to be released Thursday.

The Cushman & Wakefield/NorthMarq Compass Report indicates the vacancy rate for industrial space was 14.7 percent for the period, the lowest since 2008. The report, which tracks commercial real estate activity, is released twice a year.

The report notes an upswing in positive absorption -- an increase in occupied space -- of 1.3 million square feet in the first half for a total of 1.4 million square feet in the past 12 months. That's the most absorption since 2007.

Although the industrial market still lags prerecession levels, the report indicates there's positive momentum. Most of the downsizings, closings and consolidations have slowed and now there's some actual growth to track, the report says.

"I think we're healing after those terrible couple years we went through in the recession," said Jon Yanta, executive director for brokerage services at Cushman & Wakefield/NorthMarq.

The industrial sector, which includes warehouses, high-tech facilities, distribution centers and actual manufacturing facilities, is so tight in certain areas and categories the market is experiencing demand for more build-to-suit, and even speculative buildings.

In addition, users of industrial facilities are upgrading by seeking out better, more state-of-the-art, buildings, Yanta said. And landlords with newer office/warehouse and bulk/distribution properties may be experiencing greater pricing power when negotiating with prospective tenants. Although those landlords trying to lease older properties are continuing to offer aggressive deals and incentives to lure tenants.

The report predicts up to 775,000 square feet of positive absorption in the next six months, with rents further stabilizing. Still, the report says many users remain cautious, especially in light of Europe's uncertain economic climate and the upcoming U.S. presidential elections.

Janet Moore • 612-673-7752