Agenda - Council - 04/11/2017 - Laserfiche WebLink

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Twin Cities Retail Market Analysis The following Twin Cities retail market analysis is provided bythe July 2016 Cushman &Wakefield NorthMarq Compass Report. Retail Market Is Healthy, But Space-Constrained: Lack of Construction is Driving Upward Pressure on Rates, Renovations of Existing Centers Fueled by a stronger economy and increasing consumer spending, the Twin Cities retail market has rebounded and retailers are looking to capitalize and expand. However, the market is very competitive, and retailers face two major obstacles: a lack of available quality space and rising rates. At 6.7%, the vacancy rate remains near its lowest since the pre-recession levels of 2006. Expanding retailers are having difficulty finding space that meets their requirements, primarily due to a lack of new construction. Although construction has increased, it remains well below pre-recession levels, and much of the product being delivered is smaller in scale—including mixed-use developments with a residential component—compared with past cycles where developers were building larger suburban retail centers. Coming off of nearly 900,000 square feet (sf) of absorption in 2015, the market took a dip to 263,293 sf in the first half of the year. However, absorption is expected to rebound by year end as new construction is delivered, including stores at Eagan's Hy-Vee-anchored Central Park Commons. Solid Interest From Same 'Active List' of Retailers The retailers that are performing well continue filling holes that are popping up—whether they are snapping up the limited new construction or backfilling existing spaces (including those left behind as bankrupt Sports Authority and Hancock Fabrics leave the market). There is an active list of seven or eight retailers scooping up the majority of the vacant space. Discount retailers are driving much of the demand. Rates Soar for Prime Small-Shop Space As retailers compete for a limited amount of available space, rents are being pushed to unprecedented levels. For newer small-shop space at top-performing centers in high-demand trade markets, landlords can draw rents in the $60-per-square-foot (psf) range, which is a new benchmark and up from approximately$40 psf in 2015. Examples of sought-after markets include Edina's France Avenue, St. Paul's Grand Avenue, Minneapolis' 26th and Hennepin and Woodbury's Radio Drive. These increasing rates are pricing out some retailers and forcing them to think outside the box to get deals done. They may turn to secondary locations or space that needs more tenant improvements. 39