Minneapolis Office Market
Absorption has been negative for 16 of the past 17 quarters. In Q3, negative absorption reached 724,456 SF, raising the vacancy rate to 18.7%. Some tenants, seeking to downsize, are opting to pay termination fees to exit leases. With many needing to reduce their space by 50% or more, paying the fee and negotiating a smaller, more affordable lease often proves more cost-effective than restructuring an existing lease. While rents have remained relatively stable, tenant concessions are on the rise. Tenants are increasingly attracted to top-tier properties that offer superior amenities
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Minneapolis Industrial Market
The Minneapolis-St. Paul industrial market continues to show strong demand, despite challenges in 2024. While leasing activity picked up in the third quarter, overall absorption has slowed compared to the robust period from 2021-2023. Vacancy rates have edged up slightly, yet demand for quality industrial space remains high. The vacancy rate increased marginally to 5.4% in 3Q24, up from 5.3% in 2Q23. Absorption was more than 500,000 SF after slowing to 228,024 SF in 2Q24 from 950,498 SF in 1Q24. Sublease availabilities surged by 32%, reaching over 3.4 MSF, while direct space availability decreased. Asking rents increased to $8.90/SF, marking a 4.5% rise from $8.52 at year-end 2023. This follows a 9.2% jump in 2023, building on 2022’s 8.6% growth. Since 2020, industrial asking rents have risen by 27.1%, and while further increases are anticipated, they are expected to occur at a slower pace. Absorption began to decelerate in the second half of 2023, with YTD 3Q24 absorption totaling 1.7 MSF, compared to 4.2 MSF in 2023 and 6.0 MSF in 2022. Construction activity peaked in 2023 and is tapering. Outside of current projects under construction, few speculative deliveries are planned for the remainder of 2024, aside from occasional build-to-suit projects. Demand for big-box distribution centers remains robust, as evidenced by new developments like the 557,000-SF FedEx facility in Rosemount. Smaller industrial spaces, particularly those under 100,000 SF in urban areas, are also seeing reduced vacancy and increased activity. With interest rates decreasing, sales activity is expected to gain momentum through year-end, setting the stage for improved borrowing conditions in 2025. Despite some headwinds, the Minneapolis-St. Paul industrial market remains strong, with moderate rent growth projected into 2025.
Download Minneapolis Industrial Market Report 3Q24 Download Minneapolis Office Market Trends 2Q20