When will Twin Cities building slowdown end?

[Guest donaltopablo]

I didn't even realize there was a slowdown in construction. Hopefully it will end soon. Other than the weather factor, I have always been very impressed with the Twin Cities.

Roundtable: Predicting development's future

Real estate professionals predict when and where construction will return to the Twin Cities

Sam Black

Staff reporter

In 2002, the level of new office and industrial developments in the Twin Cities fell off a steep cliff as almost no new multitenant buildings were constructed or announced. A few build-to-suit developments were constructed for specific users, however, such as the new headquarters for Upsher-Smith Laboratories Inc. that opened recently in Plymouth and the U.S. Bank operations center built on the West Side Flats near downtown St. Paul.

Overall construction of multitenant space in the Twin Cities has sharply dropped off from a five-year average of about 5.4 million square feet per year, according to a recent market study by United Properties. Through the first half of 2003, less than 620,000 square feet of office, industrial and retail space was constructed; the slowest start to any of the past nine years.

In the meantime, developers in the Twin Cities have kept themselves busy assembling land and getting preapprovals from municipal governments so that when the market recovers, they're ready to break ground. The Business Journal invited representatives from two of the largest developers in the Twin Cities -- Opus Northwest and Ryan Cos. U.S. Inc. -- along with two other real estate professionals, to discuss where the Twin Cities is in the current development cycle, and when and where the rebound will happen.

The Business Journal: It's been a tough market for new real estate development for the past few years. Have we turned the corner yet? Give me your evaluation of the market conditions.

Craig Patterson: You're correct. Both office and industrial have been down for the better part of two years, but we are seeing signs of an upturn in the market.

The sustainability is still a question. The brokers are still the pulse of the market and what we get our business from. They've had ebbs and flows of an upturn, and I think this one feels more sustainable. It has been the better part of 60 or 90 days, and they have started feeling like activity is picking up. The leasing brokers need to stay active the next nine to 12 months before the world of development picks up.

There are going to be some sporadic build-to-suits scattered around, but I think it's going to be latter 2004 or beginning of 2005 before we see the development cycle ratchet back up.

Jon Rausch: In United Properties' July Outlook report, we've got six industrial projects currently under construction and two office projects. That's down substantially, not to last year, but to the five-year average.

The velocity of leasing deals in the market right now is creeping up. We're starting to see more deals. We're seeing more requests for proposals [RFPs], especially relative to a year ago.

Mark Schoening: There's more activity in the market in the sense that there are more RFPs, but at the same time, I would say the market won't start to rebound until there's some pricing power on the part of developers, and that's not the case yet. We chase more things than we did six months ago, but it's hard [to compete on price] because there's existing product on the market that's well priced.

I happen to think that it's going to snap back quicker than people anticipate. But if the question is, "Is there a rebound today -- has it begun to rebound yet?" I say "No, not yet."

Business Journal: So why are projects that are out there being developed and are they representative of the market?

[Guest donaltopablo]

I don't think it's is either, although Twin Cities seems to be a little harder hit that a lot of other cities. I wasn't trying to be negative about Twin Cities, just noticed the article and thought it would make for some interesting reading.

[turlough]

I didn't know they had a slow down what about the new target building there?

[Twin Cities]

Nice try guys . The vacancy rate is dropping within Minneapolis and the city has recently decided to add nine more downtown blocks specifically for developers to build office towers. Minneapolis will need an additional 13 million to 17 million square feet of office space during the next 20 years -- about a dozen IDS Centers, or more. Also, the weather excuse is pretty lame considering the Twin Cities is still one of the fastest growing metros in the country (actually adding more people than several sun belt cities) with over 3.1 million people.

[Guest donaltopablo]

Nice try guys . The vacancy rate is dropping within Minneapolis and the city has recently decided to add nine more downtown blocks specifically for developers to build office towers. Minneapolis will need an additional 13 million to 17 million square feet of office space during the next 20 years -- about a dozen IDS Centers, or more. Also, the weather excuse is pretty lame considering the Twin Cities is still one of the fastest growing metros in the country (actually adding more people than several sun belt cities) with over 3.1 million people.

I didn't post this article trying to make a cheap shot at the twin cities. The fact is, a lot of cities are suffering a glut of office space and a slow down in construction. In most cases, it's going to be temporary. The Twin Cities are a fast growing metro.

Weather is just an excuse why I PERSONALLY would not want to move to the Twin Cities. As noted above, I was still very impressed with my visits there. Please take what we say in context, this wasn't an attack.

[Twin Cities]

I'm sorry, but I didn't see your statement "I wasn't trying to be negative about Twin Cities." Also, I tend to jump on doom & gloom articles and being it was the first thing I read, I had it in mind while responding.

[Twin Cities]

Thanks for the greeting monsoon and yes, you will see more of me. By the way, you guys have a nice site goin on here.

[Guest donaltopablo]

I'm sorry, but I didn't see your statement "I wasn't trying to be negative about Twin Cities." Also, I tend to jump on doom & gloom articles and being it was the first thing I read, I had it in mind while responding.

It's all good. I can certainly understand how easy it is to get defensive, a lot of people on these forums (all of them in general) can go out of their way to be very negative towards other cities. Sorry if I sounded harsh in my response.

I'm with monsoon, glad you visited the forum. Hope to see more of you here.

[JS9]

Last year, a lot of cities in the South had a worse winter than we did.

The weather excuse is outdated, over rated, and overused.

[JS9]

I didn't know they had a slow down what about the new target building there?

I didn't know they had a slow down what about the new target building there?

Which one? The downtown store or the World HQ? Both are finished. have been for a year or so now.

[Allan]

It's hard for me to imagine a building slowdown...maybe because there are currently 32 subdivisions under construction in my area! Bye Bye farms, hello ugly, identical, poorly planned houses.

[JS9]

Well, through the middle of January last year, we had more days above 50 than below it.

Same with the winter before that. It was 70 degrees a week before Christmas.