Minneapolis-St. Paul industrial market report

The Twin Cities industrial market is still going strong, but there are signs that we might be headed towards a correction. Supply has been struggling to keep up with demand, but the square footage of product under construction has been increasing since 2018. There is now potential for over 10 million square feet to be delivered in 2023, which could lead to higher vacancy rates and more owner concessions for older, class C properties. The total number of lease deals in 2022 was the lowest we’ve seen since 2010, and while the sales volume increased in Q4, brokers are beginning to see investors take a step back due to rising interest rates. The slowdown of leasing activity combined with the flood of new deliveries coming to market will likely bring new construction starts to a crawl by 2024, especially for speculative properties. Lastly, shorter lease deals of 5–7 years are much more common than they once were. Many landlords, mostly large, institutional ones, are pushing for shorter leases with the hope that rates will continue to increase, and they’ll be able to close another deal with higher rent in just a few years. There are merits to this strategy, but it could backfire if the industrial market enters a downcycle.