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January 2019 
Executive Summary 

Twin Cities Commercial Real Estate Market Remains Active Even During Late Stages of Record Cycle 

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The Twin Cities multitenant commercial real estate industry remained active in the second half of 2018, even as multiple property types faced changing occupier and consumer preferences, dramatically outpacing projections for absorption and showing staying power for 2019 and beyond. At the end of 2018, the market’s multitenant properties posted a vacancy rate of 10.9 percent, according to Cushman & Wakefield’s bi-annual Compass Report, up slightly from the 10.6 percent rate posted six months prior. 

A total of just over 1 million square feet (msf) was absorbed by occupiers throughout the office, industrial and retail property types in the second half of 2018, significantly more than what Cushman & Wakefield had projected for the six-month period. 2018 ended with 2.78 msf of absorption across those property types, the market’s best year for absorption since 2015. The industrial sector drove much of the activity with 2.78 msf absorption over the course of the year. Office saw 600,000 square feet (sf) of absorption, while retail saw negative absorption of the same amount.

New construction continued forward at a healthy pace, with 1.5 msf being built across all property types in the second half of the year. That brought the year-end construction completions to 2.1 msf, down slightly from the 2.5 msf delivered to the market in 2017. The pace is expected to continue into 2019, the first half of which will see approximately 1.5 msf of space delivered to the market, a number that doesn’t include single-tenant build-to-suit developments.    

Hotel Demand Exceeds Supply Despite Construction Boom
Despite a surge in new rooms delivered, the Twin Cities hotel sector is resolute, posting record demand and absorbing new product. The healthy economy is fueling demand from both business and leisure travelers, and as long as the economy remains strong, there are no significant signs of a downturn. Rates continue to rise due to demand growth. 

Medical Office Sector Pauses as it Adapts to Evolving Healthcare World
Even with the changing healthcare environment -- including new delivery models and space requirements -- the Twin Cities medical office market has a healthy prognosis. Leasing and construction activity have slowed as demand catches up with the flurry of new space delivered in the first half of 2018. Meanwhile, the sector has "paused" as healthcare systems and private practice groups evaluate the shifting environment and seek to modify their real estate strategies accordingly.

Retail Market Adjusts to New Landscape, Closing Chains

The Twin Cities retail sector continues to chip away at the inventory of big-box vacancies left behind by national bankruptcies and store closures. The majority of the big-box vacancies have hit the market and most of the space is still available, offering expanding concepts and emerging new brands the opportunity to land in desirable locations. Prime space in the strongest trade markets is getting backfilled, while less attractive locations will take longer to absorb. 

Industrial Sector Continues its Hot Streak

The up-cycle for the Twin Cities industrial sector is hardly over, and in fact, picked up steam in 2018, and that momentum is expected to continue into early 2019. Leasing activity is particularly robust in the Northeast metro. The overall market’s absorption for 2018 totaled 2.78 million square feet – its second-best performance since the 2008 financial crisis.

Liquidity Continues to Drive Investment Sales Market

More capital continues to flow into the Twin Cities, and in some cases, from capital sources that did not even have the metro on their radar a few years ago. The level of activity in downtown Minneapolis, both in terms of sales and on-the-market properties, is at its highest in recent memory. The office, industrial, and multifamily sectors in particular boasted significant jumps in 2018 transaction volume. One of the biggest trends, however, continues to be a lack of properties for sale.

Land Market Dominated by Aggressive Single-Family Developers

With an unprecedented appetite for suburban land positions, national homebuilders raced to build new single-family subdivisions to strategically cope with rising interest rates and construction costs. This vigorous activity led to “low-density residential” becoming the hottest sector of the Twin Cities land market. However, homebuilders did not overpay for prime lots, as sellers mostly seem to have abandoned their unrealistic pricing expectations.

Multifamily Bull Run Continues

Despite the multifamily development boom, the Twin Cities maintains its position as one of the most resilient, in-demand apartment markets nationwide. Even accounting for new buildings undergoing lease-up, vacancies remain well below the national average at 3.3%. New supply has remained relatively in balance with market demand, even with an extremely active construction pipeline.

Twin Cities Office Market Redefines Itself

Despite the continued right-sizing of tenants, office leasing activity remained solid in the second half, which pushed absorption to nearly 600,000 sf in 2018. Overall, market fundamentals are good – even great in some pockets – with both vacancies and rental rates continuing to show steady improvement.

Absorption is expected to continue strong in the first half of the year, with approximately 2,200,000 sf projected across all property types. That number is largely driven by Industrial properties, where 1.1 msf of absorption is expected.

Construction continues at a strong pace, and 1.5 msf of properties expected to be complete by mid-2019. The investment sales market is also expected to be active in 2019, with several top-tier properties already on the market.


The Compass report, published since 1997, is created by Cushman & Wakefield experts using Twin Cities commercial property data from the first six months of 2018. The data used for this report has been obtained from sources which we deem reliable. While every effort has been made to report accurate data, Cushman & Wakefield cannot guarantee the accuracy of this market report. Furthermore, we cannot assume responsibility for any omission of data which may occur. It is our intent to provide the best possible information regarding the office, industrial, land, retail, multi-family and investment markets while leaving the reader the responsibility of further verification before using this report for business and/or financial decisions.

This report includes information for multi-tenant office, industrial and retail projects greater than 20,000 square feet and multifamily for-rent properties. Not included are owner-occupied, government or single-tenant buildings. Not all information and insights we've collected can be published in any given volume.

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