Real estate notebook: Vacancies tight in Twin Cities industrial buildings

The vacancy rate for industrial buildings in the Twin Cities dropped last year to 6.9 percent, the lowest it has been in more than a decade as analysts predict that activity will remain steady for the first part of 2017, with companies scrambling to find space.

More than 2.6 million square feet of space was absorbed by the local market in 2016, according to a recent industrial report by Colliers International, Minneapolis-St. Paul.

The total handily beats the average absorption rate of the last 10 years, which was 1 million square feet.

"Some of the new buildings that have been built are exactly what the prospects are looking for," said Steve Nilsson, a vice president in Colliers' industrial brokerage division. Eric Rossbach and Colliers

Closer to the core of the Twin Cities, it has become harder and harder for companies to find large amounts of available industrial space, he said. Nilsson predicted more investment from outside the state would continue to pour in. "The investment market has been really strong," he said.

An example of some of the recent activity is the sale of the nearly 300,00-square-foot I-94 Distribution Center in Rogers to Dalfen America Corp. for $16.4 million. That was almost $7 million more than the Excelsior Group purchased the complex for in 2014. Excelsior made significant upgrades to the center, which paid off in the sale to Texas-based Dalfen.

"Our purchase of the I-94 Distribution Center demonstrates our focus on acquiring core-plus multitenant industrial properties in strong markets," Scott Henry, vice president of acquisitions for Dalfen, said in a statement.

Eric Rossbach, another Colliers vice president, said that it has become more and more attractive for companies to acquire their own properties as well. While interest rates are on the rise, analysts say they don't think investor interest will dampen. Colliers predicted robust absorption and continued declining vacancy rates in the first and second quarters of this year.