Report: Industrial rent jumps 30% from last year

In the third quarter of 2023, the average cost of rent for an industrial space in the Twin Cities was $7.48 per square foot. Today, the rental rate sits at $9.76, according to a new report released by Colliers.

This nearly $2.30 jump is the likely result of a handful of factors, including a 4.2% vacancy rate and the 78% decrease in the square footage currently in the construction pipeline.

The vacancy rate is up slightly from the second quarter where it sat at 4%, while the rent per square foot is up $0.20. The low vacancy along with rising rents is not a surprise for many, as the anticipated construction crunch as a result of the unfriendly interest rate environment kept dirt from being moved. Andrew Odney, Colliers vice president said there’s potential for the market to grow even tighter.

The warehouse-distribution vacancy in the core of the seven-county metro sits at 3.6%, according to the report, while the outer part of the metro sits at a higher 8.7%. Industrial properties in Rogers, Otsego, Cottage Grove and Woodbury, Odney said, have potential users circling.

“They’re not done yet, but if they do, that’s going to change the overall vacancy landscape,” Odney said during a Thursday interview.

Net absorption for the market is 460,000 square feet, according to the report.

Odney says the industrial market is a landlord’s market because of the rising rents, but he says the recent drop in interest rates combined with high demand by users will make developers confident enough to start building.

“Unless there’s a large macroeconomic event, which certainly could happen I mean we’re in an election year, there’s other factors that influence the real estate market if we continue like we’ve been going, it’s going to be another year of very low vacancy in a very tight market,” Odney said.

Transaction volumes in the industrial market are down from this time last year and down from last quarter, according to the report. Odney said he thinks the reason for this is that some landlords are likely going to be able to generate more cash flow than before.

Flex buildings also seem to be in high demand. Buildings with a “significant” office finish are grabbing rental rates more akin to that of office properties, which underscores “the strength of demand for prime industrial space,” the report says. Finance & Commerce previously reported on the $44 million deal that Hunt Electric paid for the Spectrum Commerce Center, a flex building in Eagan. This trade between Hunt and Water Street is one of the more expensive deals in the industrial market to come out of the Twin Cities this year.

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