Minneapolis-St. Paul Research & Forecast Report | Q2 2019 | Retail | Colliers International Research & Forecast Report > RETAIL MARKET REPORT MINNEAPOLIS-ST. PAUL | Q2 2019 VACANCY AND ABSORPTION TRENDS In the Minneapolis-St. Paul retail market, the first half of 2019 concluded with negative 41,500 square feet in absorption, leading to an increased vacancy rate of 6.6%. The decreases in absorption is a result of the limited amount of multi-tenant construction completed at the start of this year. The finished construction output amounted to a total of 68,000 square feet in small strip malls in Neighborhood Centers. The negative absorption that took place mostly occurred in the beginning of the year when three Herberger’s locations closed for a total 223,00 square feet at Southdale Mall, Northtown Mall and Midway Shopping Center. Also, the closures of three Big Lots at Knollwood Village, Tamarack Village, and Valley West Shopping Center equated for another 87,000 square feet of negative absorption. A rebound occurred later in the second quarter. The Herberger’s vacancy at the Northtown Mall was short lived, as it was quickly backfilled by Becker Furniture Liquidation Outlet. Other offsets of negative absorption were rescinded by the addition of four Aldi grocery stores and Xperience Fitness opening in Blaine. Vacancy is expected to decline, however, in the second half of 2019 as redevelopment projects such as Sibley Plaza and Texa-Tonka are estimated to complete construction. Large freestanding Hy-Vee developments in Maple Grove and Spring Lake Park, as well as a CostCo in Eagan may spur development in these areas too. Unforeseen closures could certainly ensue, but positive absorption into 2020, with a stable economy and the current construction pipeline for new retail suggests a positive outlook. What’s expected to be delivered next year is larger regional center redevelopments that include LifeTime in Southdale, Scheels in Eden Prairie and the Dayton’s Project in the Minneapolis CBD. Retail Leasing Accelerates in Second Ring Suburbs Q2 MARKET INDICATORS VACANCY RATE 6.6% NET ABSORPTION -41.5KSF AVG QUOTED RATES $15.89PSF CONSTRUCTION -356KSF W/ SUBLEASE VACANCY 6.4%
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Minneapolis-St. Paul Research & Forecast Report | Q2 2019 | Retail | Colliers International
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RETAIL MARKET REPORTMINNEAPOLIS-ST. PAUL | Q2 2019
VACANCY AND ABSORPTION TRENDS
In the Minneapolis-St. Paul retail market, the first half of 2019 concluded with negative 41,500 square feet in absorption, leading to an increased vacancy rate of 6.6%. The decreases in absorption is a result of the limited amount of multi-tenant construction completed at the start of this year. The finished construction output amounted to a total of 68,000 square feet in small strip malls in Neighborhood Centers.
The negative absorption that took place mostly occurred in the beginning of the year when three Herberger’s locations closed for a total 223,00 square feet at Southdale Mall, Northtown Mall and Midway Shopping Center. Also, the closures of three Big Lots at Knollwood Village, Tamarack Village, and Valley West Shopping Center equated for another 87,000 square feet of negative absorption. A rebound occurred later in the second quarter. The Herberger’s vacancy at the Northtown Mall was short lived, as it was quickly backfilled by Becker Furniture Liquidation Outlet. Other offsets of negative absorption were rescinded by the addition of four Aldi grocery stores and Xperience Fitness opening in Blaine.
Vacancy is expected to decline, however, in the second half of 2019 as redevelopment projects such as Sibley Plaza and Texa-Tonka are estimated to complete construction. Large freestanding Hy-Vee developments in Maple Grove and Spring Lake Park, as well as a CostCo in Eagan may spur development in these areas too. Unforeseen closures could certainly ensue, but positive absorption into 2020, with a stable economy and the current construction pipeline for new retail suggests a positive outlook. What’s expected to be delivered next year is larger regional center redevelopments that include LifeTime in Southdale, Scheels in Eden Prairie and the Dayton’s Project in the Minneapolis CBD.
Retail Leasing Accelerates in Second Ring Suburbs
Q2 MARKET INDICATORS
VACANCY RATE
6.6%
NET ABSORPTION
-41.5KSF
AVG QUOTED RATES
$15.89PSF
CONSTRUCTION
-356KSF
W/ SUBLEASE VACANCY
6.4%
Minneapolis-St. Paul Research & Forecast Report | Q2 2019 | Retail | Colliers International
VACANCY AND ABSORPTION TRENDS (cont'd)
Absorption
Vacancy
Significant Retail Lease ActivityTENANT PROPERTY ADDRESS CITY LEASED
SF SUBMARKET TYPE
Aldi Sibley Plaza 2395-2401 W 7th Street Saint Paul 24,000 Southwest New
Retro Fitness Burnsville Marketplace 13901-14121 Aldrich Ave S Burnsville 21,479 Southwest New
Planet Fitness Valley West Shopping Center 10520-10608 S France Ave Bloomington 19,037 Southwest New
Dollar Tree Former Walgreens 9124 Broderick Blvd Inver Grove Heights 14,560 Southwest Sublease
South View Veterinary Hospital South Robert Plaza 2000 S Robert Street West Saint Paul 13,559 Southwest New
Planet Fitness Sibley Plaza 2395-2401 W 7th Street Saint Paul 12,465 Southwest New
Salons by JC 3016 Hennepin Ave 3016 Hennepin Ave Minneapolis 11,200 Southwest New
Five Below Rosedale Commons 2480 Fairview Ave N Roseville 9,700 Northeast New
Thr3 Jack The Nordic 729 N Washington Ave Minneapolis 9,230 Northwest New
The Galley The Nordic 729 N Washington Ave Minneapolis 8,748 Northwest New
Product Type Trends
The product type that performed best in the first half of the year were in neighborhood centers with a positive absorption of 215,000 square feet. Non-traditional users were the largest contributor to positive gains in neighborhood centers, which included three medical tenants and a storage user. Convenient access and locations to greater populated areas is a key reason why neighborhood centers continue seeing an influx of non-traditional users such as medical tenants. Medical tenants used to be a band-aid to fill a distressed center however, landlords are increasingly seeking dental, veterinary and urgent care clinics. Medical tenants can afford higher rent and are good complementary use in terms of off-peak parking.
Retail Trade Area Trends
The retail trade area garnering the most positive absorption in Q2 is Northtown, with 57,000 square feet, which was due to Xperience Fitness taking the former Kmart junior box space. Woodbury saw the second most positive absorption with 42,000 square feet, followed by Blaine with 25,000 square feet of positive absorption. Retail trade areas with the most positive absorption the past six quarters have been outside the I-494/694 ring. Bi-quarterly, only the trade areas of Apple Valley, Shakopee and Woodbury have averaged over 20,000 square feet in positive absorption. Growing populations, an access to undeveloped land and not losing big box tenants that have vacated from more traditional regional trade areas are reasons for continued absorption. Vacancy remains tight in desired inner ring regional trade areas such as Rosedale, Southdale, and Ridgedale.
4/10/19 Park Commons Shopping Center Brooklyn Park 34,400 $7,850,000 $228.20 Fourscore Resource Capital The Blackhawk Investment
Group LLC
3/6/19 Walgreens White Bear Lake 14,820 $6,240,000 $421.05 Charles Ribakoff Blue Ridge Real Estate Co.
4/9/19 Avon Corner Saint Paul 17,181 $6,000,000 $349.22 Lund Food Holdings, Inc Avon Corner LLC
Minneapolis-St. Paul Research & Forecast Report | Q2 2019 | Retail | Colliers International
It is true that the majority of retail leases signed in the Twin Cities are with national or credit franchises. This is due in part to the fact that local deals are becoming increasingly difficult to complete for a number of reasons, including: credit issues, a smaller pool of prospects and construction costs steadily rising for the past several years. For example, if a space is in raw condition, build-out costs can be up to $30 per square foot to bring the space to shell delivery condition, then the tenant still has to bring the space from delivery condition to their finish requirement. Total costs, depending on the type of retailer and space condition, can range from $75 per square-foot to $300 per square-foot. For some local retailers these skyrocketing construction costs have become entirely cost prohibitive to starting, expanding or relocating their businesses.
So how do landlords, owners or developers, who are looking to attract tenants to their office buildings or luxury multifamily developments land the perfect unique, local retail tenant who will complement the building’s brand, vibe or “hip factor” and contribute to lease-up by increasing the value of the project space?
Enter the Amenity Lease - a new-to-market concept that is gaining quick momentum in the Twin Cities.
The Amenity Lease is a term used to describe the transaction when a property owner makes capital investments into their building
by funding between 75%-100% of the retail or restaurant tenant improvement including Furniture, Fixtures and Equipment (FF&E). The tenant brings their expertise, concept and operating experience and pays either below market rent or a percentage of sales in their lease agreement.
This lease structure allows mostly local brands that are popular or have a strong reputation, who might not have the capital, or need to invest in expansion to new locations, to move into luxury, multifamily or Class A office buildings. This also benefits the property owner by contributing to the overall ambiance of the project as a strong selling point amenity to increase occupancy, shorten lease up timing and potentially, higher rental rates. While this structure is still very new to the Twin Cities’ market, it is gaining fast momentum, especially with restaurant and high end fitness concepts who are presented with more location opportunities than they can consider. There are a few innovative Twin Cities’ concepts who have already proven that the partnership works well and to everyone’s advantage.
An example of an Amenity Lease in the mixed use multifamily category is Yoga Fit, an experiential, high-end Anytime Fitness yoga studio. The group already negotiated several Amenity Leases in luxury multifamily developments in mostly urban locations to the success of the landlord and the tenant alike. Yoga Fit is the perfect
SPOTLIGHT TREND: The Emergence of the “Amenity Lease”
Minneapolis-St. Paul Research & Forecast Report | Q2 2019 | Retail | Colliers International
candidate for an amenity opportunity, because the concept is highly desired by the market: It is a destination use, boutique fitness brand with high end finishes, offering specialized classes to both the tenants in the project and the immediate trade area. If a prospective tenant has a choice between leasing space in a building with or without a high end boutique fitness use, amenity tenants definitely stack the cards in the project’s favor.
Another example can be found in Minneapolis CBD office tower/skyway market. When the new owners of Fifth Street Towers stepped in to reposition the property, they not only made substantial capital investments to common areas, adding tenant lounges, napping pods and rooftop decks, but they have also included a new bar and quick serve tapas restaurant in the skyway called Sphere, a fine eat in/take out and bar/happy hour concept in the downtown skyway which created energy and activity after 3:00 in the afternoon when the skyways are typically “dead.” The owners worked with a local experienced restaurant group to create, design, and operate the concept. Thus, adding a one-of-a-kind amenity to the building that has elevated the profile of Fifth Street Towers and has helped to attract new tenants.
A final example of the success of the Amenity Lease comes from local, successful restaurant concepts that have the opportunity to expand to many second generation options currently on the market. Because construction costs to open a new restaurant are so astronomical, Amenity Leases are helping to bridge the capital
investment gap for local, innovative restaurant operators. For example, a multi-location, James Beard winning local operator recently said, “Why should I put my own capital into a new location when I have so many opportunities presented to me every week?” The only way to do new sites is partnering with the landlord and having them build the space for me. In exchange, I’ll design the concept with a vibe that matches the project’s brand, design and operate it and pay a percentage of sales. It’s a win-win relationship.”
The Amenity Lease model works best when a multifamily development or an office building with prime commercial space is looking to create or endorse their “brand” by securing a tenant that will augment their “vibe.” The local, grassroots trend is gaining popularity through the emergence of the Amenity Lease, a natural evolution for landlords to find ways to attract restaurants and retailers to their project for a win-win relationship in the changing landscape of commercial real estate.
Minneapolis-St. Paul Research & Forecast Report | Q2 2019 | Retail | Colliers International
New to Market
Expanding
TENANT TRACKER
Minneapolis-St. Paul Research & Forecast Report | Q2 2019 | Retail | Colliers International
The above table is summarized data on multi-tenant office buildings greater than 20,000 square feet. Not included are single-tenant, owner-occupied, medical or government buildings.
MULTI-TENANT MARKET STATISTICS
ASKING RENTAL RATESSUBMARKET # BLDGS BUILDING SF DIRECT AVAILABLE SF
The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
Revenue
$2.7B(US$)
Managing
2BComprised of
15,400
Lease/sale transactions
68,000Transaction value
$116B(US$)
Established in
69countries
All statistics are for 2017, are in U.S. dollars and include a�liates.
professionals (square feet)
Revenue
$2.7B(US$)
Managing
2BComprised of
15,400
Lease/sale transactions
68,000Transaction value
$116B(US$)
Established in
69countries
All statistics are for 2017, are in U.S. dollars and include a�liates.
