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An overview of the Twin Cities commercial real estate market.
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Office Locations & Services
Valuation & CounselingDue DiligenceTransactional & Litigation SupportSpecialty Property ExpertisePortfolio ValuationDevelopment Incentives
Introduction
Real estate markets in the United States continued to improve throughout 2011. Notable news for 2011 includes:
– Continued bifurcation of many sectors• “Trophy” assets vs. Class B and C properties
– Positive Economic News• Strong performance in the Multifamily sector• Early signs of stabilization in home values• Even lower interest rates• Continued decline in cap rates• Improving Consumer Confidence & Spending although
consumer borrowing is up
– Negative Economic News• Persistent high unemployment and underemployment• European debt issues create uncertainty
A Look Into 2012 and Beyond
Values are likely to increase slowly due to a combination of improved fundamentals and a slight decrease in cap rates
High construction costs combined with sluggish demand will result in Constrained New Supply- Multi-family likely to see the majority of new construction- Continued strong commodity prices and energy costs keep
construction costs high
Properties that do not become functionally obsolete generally rebound to their depreciated replacement cost at some point in the cycle
New Completions
25-Year Average: 2.1%
Supply growth this low barely exceeds
obsolescence
Outline
• Tom Stinson, Minnesota State Economist
• Office Market Update• Retail Market Update• Multi-Family Market Update• Industrial Market Update
Office Market Update•Mitch Simonson, MAI – Moderator
– Steve Chirhart, TaTonka Real Estate Advisors
– Scott Pollock, Cushman & Wakefield/NorthMarq
– Mike Salmen, Transwestern
Office Cap Rates Decrease Slightly in 2010 and 2011
Office – CBD The Best, The Worst and The Local Markets
Top Three Markets By Vacancy…Charlotte, NC – 7.60%Boise, ID – 8.41%Philadelphia, PA – 9.20%
Local Markets…Minneapolis, MN – 15.9%St. Paul, MN – 21.3%Combined CBDs – 17.0% - (Source: NAIOP)
…and the Bottom Three MarketsDallas, TX – 25.7%Syracuse, NY – 29.0%Dayton, OH – 29.0%
Office – Suburban The Best, The Worst and The Local Market
Top Three Markets By Vacancy…Nashville, TN – 8.94%Pittsburgh, PA – 9.35%Greenville, SC – 10.50%
Local Market…Minneapolis/St. Paul, MN – 19.85%
…and the Bottom Three MarketsSacramento, CA – 24.37%Las Vegas, NV– 25.93%Chicago, IL – 26.23%
Office Absorption
Submarket Name
Avg. Annual Net
Absorption (SF)
(2008-2011)
Forecast Avg. Annual
Net Absorption
(SF) (2012-2014)
Annual Net Absorption
as % of Office
Universe
Downtown (Mpls CBD) -150,000 418,000 1.5%
Suburban Totals -291,000 828,333 1.7%
REIS forecasts 2012 Absorption at 985,000 square feet, or 1.3% of Office Universe of 75,583,000 square feet
Minneapolis CBD Office Market Cycle
Suburban Office Market Cycle
December 2011 Class A Office Sales
West End Towers, St. Louis ParkTwo Buildings, 484,104 SF, $147/SF
Two Marketpointe, Bloomington236,000 SF Building and 5.75 acre vacant land parcel, About $240/SF building area plus vacant land
December 2011 Class A Office Sales
Cargill Building, Hopkins254,915 SF, $273/SF
The Colonnade, Golden Valley359,655 SF, $140/SF
Retail Market Update•Michelle D. M. Koeller, MAI, MRICS – Moderator
– Jen Helm, Cushman & Wakefield/NorthMarq
– James McComb, McComb Group Ltd.– Herb Tousley IV, Exeter Realty
Retail Cap Rates Decrease Slightly in 2010 and 2011
Retail The Best, The Worst and The Local Markets
Top Three Markets By Vacancy…San Francisco/Oakland, CA – 3.83%Los Angeles, CA – 4.78%Washington, D.C. – 4.88%
Local Market…Minneapolis/St. Paul, MN – 8.29%
…and the Bottom Three MarketsHouston, TX – 16.23%Dayton, OH – 18.31%Providence, RI – 20.00%
Retail Absorption
Minneapolis/St. Paul Market
Avg. Annual Net
Absorption (SF)
(2008-2011)
Forecast Avg. Annual
Net Absorption
(SF) (2012-2014)
Annual NetAbsorption
as % of Retail
Universe
Metro Area Totals -351,000 435,667 0.66%
REIS forecasts 2012 Absorption at 332,000 square feet, or 0.5% of Retail Universe of 66,184,664 square feet
Retail Market Cycle
Retail Market Cycle
Apartment Market Update•Dan Mueller, MAI – Moderator
– Abe Appert, CBRE– Gina Dingman, Everest Real Estate
Advisors – Steve Schachtman, Steven Scott
Management
Apartment Cap Rates Decrease in 2010 and 2011
ApartmentsThe Best, The Worst and The Local Market
Top Three Markets By Vacancy…Minneapolis/St. Paul, MN – 2.46%San Jose, CA – 3.09%New York, NY – 3.10%
Local Market…Minneapolis/St. Paul, MN – 2.46% Mpls./St. Paul has the lowest vacancy of
surveyed markets22 of 59 markets have vacancy at or below 5.0%
…and the Bottom Three MarketsSarasota, FL – 9.50%Columbia, SC – 11.00%Houston, TX – 11.88%
Apartment Absorption
Minneapolis/St. Paul Market
Avg. Annual Net
Absorption (Units)
(2008-2011)
Forecast Avg. Annual
Net Absorption
(Units) (2012-2014)
Annual NetAbsorption
as % of Multi-family
Universe
Metro Area Totals 1,559 1,122 0.72%
REIS forecasts 2012 Absorption at 1,057 units, or 0.68% of Apartment Universe of 155,270 units
Apartment Market Cycle
Industrial Market Update•Jeffrey A. Johnson, MAI – Moderator
– Ben Applebaum, WelshInvest– Dave Jellison, Liberty Property Trust– Greg Miller, Interstate Partners– Arvid Povilaitis, Meritex
Industrial Cap Rates Decrease in 2010 and 2011
IndustrialThe Best, The Worst and The Local Markets
Top Three Markets By Vacancy…Los Angeles, CA – 5.04%Houston, TX – 5.77%Orange County, CA – 5.91%
Local Market…Minneapolis/St. Paul, MN – 12.23%
…and the Bottom Three MarketsLouisville, KY – 18.47%Raleigh/Greensboro, NC – 20.03%Boston, MA – 20.77%
Industrial Absorption
Minneapolis/St. Paul Market
Avg. Annual Net
Absorption (SF)
(2008-2011)
Forecast Avg. Annual
Net Absorption
(SF) (2012-2014)
Annual NetAbsorption
as % of Industrial Universe
Metro Area Totals 548,000 2,115,000 1.88%
REIS forecasts 2012 Absorption at 1,528,000 square feet, or 1.3% of Industrial Universe of 112,256,490 square feet
Industrial Market Cycle
61 Offices in 33 StatesOver 900 Consultants & Advisors
160+ MAIs Company-Wide42 FRICS & 44 MRICS
Integra Realty Resources
Nation’s Largest Valuation and Counseling Firm