Steady Midpoint Sets Stage for Major Change in Second Half of 2018

 

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Vacancy and Absorption Trends

The first half of 2018 has been relatively stable in terms of net absorption in the Minneapolis-St. Paul multi-tenant retail market. The market total saw negative 6,800 square feet of absorption in the first two quarters combined, which sets the multi-tenant direct vacancy rate at 6.21%.

Looking beyond the physical absorption and vacancy numbers, the retail market has seen several major changes and expectations are that the second half of the year will see a dramatic shift in these figures. From a vacancy perspective, Big Box and Junior Box vacancies dominate our statistics. These also happen to be product types that have been hit hard by retailer closures. In the first half of the year, Gander Mountain, Herberger’s, Toys R Us and Babies R Us, as well as several Sears, Kmart and JCPenney locations have announced closures locally. However, there has been positive activity with backfilling new larger box vacancies, especially in well-located areas.

While vacancy rates are expected to rise in the second half of 2018 as these spaces are fully vacated, 2019 should see rates drop back to near-current levels. Outparcels, quick-service restaurants, fitness and furniture users have all been active product types filling vacancies in the first half of the year.

Retail construction has been slightly below average, with 325,000 square feet completed year to date, headlined by a new 165,000-square-foot Costco in Woodbury. There is currently another 350,000 square feet of retail space under construction that should be completed by the end of 2018. Last year, there was 1.15 million square feet completed, so 2018 is expected to end below those figures. These construction numbers count both multi-tenant and single-tenant buildings— not all of these buildings will enter our tracked universe due to size and tenancy.

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