Industrial Vacancy Rate Up to 11.4%

MINNEAPOLIS-The Twin Cities’ industrial real estate market felt the pinch from the economic slowdown in the first half, especially in the tech sector, according to a recentcommercial real estate survey by United Properties. Market activity slowed to a lukewarm pace, with growth in the medical-tech industry helping offset lower demand in other industries, according to a mid-year report from the Bloomington, MN-based commercial real estate company.

The marketwide vacancy rate rose a point to 11.4%. Sublease space — up 50% since January — remains a significant competitive factor in many of the submarkets and pushes the overall vacancy rate to 14.2%.

The market, which totals 82 million sf, showed a negative absorption of 635,760 sf over the first six months. By type of space, that sorted out to a positive 80,786 sf for bulk warehouse, a negative 437,274 sf for office showroom and a negative 279,272 sf for office warehouse, according to the United survey.

Activity in the Northeast submarket was strong enough to show positive absorption of almost 100,000 sf in spite of 421,000 sf of new construction coming on line. Owners of office showroom properties are aggressively pursuing more tenants more oriented toleasing office space that showroom space.

Demand was slowest in the tech-heavy Southwest submarket, where vacancies rose almost 3 percentage points. Rental rates softened slightly. A negative absorption of 401,000 sf was due primarily to the addition of new space coming on line at the end of2000 and the first part of 2001. Major space users such as ADC Telecommunications slowed or stopped growing during the first half of the year.

The closing of e-commerce company ClickShip, a unit of Provell (formerly Damark), brought 250,000 square feet of sublease space to the Northwest submarket. In the Southeast submarket, more than 600,000 sf of sublease space is available.

Even so, rental rates are holding steady. Although new development has been focused on attracting airport-related business around the growing Twin Cities International Airport, the recent setbacks to the airline industry and delay in airport expansion plans may affect that, according to industry observers.