• “Bullish” might best describe the Northwest submarket, as its vacancy dropped to 10.7% from 11% at mid-year. This is the lowest vacancy of any of the submarkets. The Northwest includes 292 industrial properties totaling in excess of 25 million square feet. This submarket also boasted 590,076 sq. ft. of positive absorption—the highest in any of the submarkets.
• The bulk market in the Northwest—at 9.8% vacancy—is by far the healthiest of any bulk market, and it experienced plenty of leasing activity in the past six months, reporting 292,278 sq. ft. of absorption. The good news is that absorption was not in just one transaction, but in a series of deals.
• One of those bulk deals was signed by Data Recognition Corporation. The privately held company, which provides information management for government and businesses, leased 190,000 sq. ft. at 7303 Boone Ave. N. in Brooklyn Park. Also, CIS Technologies took 50,000 sq. ft. of bulk space at the Ultra Pak Building in Rogers.
• Another big bulk deal was Zomax Inc. leasing 120,000 sq. ft. at the new 330,000-sq.-ft. Crosstown XII in Brooklyn Park, a speculative building developed by Duke Realty Corporation. Taking advantage of the Northwest’s tight bulk market, developers are confident to go speculative. The newly opened Crosstown XII is a bulk distribution warehouse facility with 32-foot ceilings. The building was developed on Duke’s last parcel of land at its Crosstown North Business Park, near Highways 169 and 610.
• In another speculative bulk development, Marfield, Belgarde & Yaffe Co. completed the 240,000-sq.-ft. Diamond Lake Industrial Center Phase III in Rogers at Wilfred and Diamond Lake Road. No leases are yet signed.
• Also impacting the bulk vacancy, the Northwest lost some absorption due to subleases. Hutchinson Technology signed a sublease for 47,000 sq. ft. at Crosstown VI in Brooklyn Park. Also, Stein Industries took a sublease for 90,000 sq. ft. at the Pur Building at 9300 75th Ave. N. in Brooklyn Park
• Office warehouse saw significant positive absorption of 216,714 sq. ft., helping to push down the warehouse vacancy to 9.9% from 11.8% at mid-year.
• Two of the largest warehouse deals were Pneumadyne leasing 44,000 sq. ft., including 10,000 sq. ft. of office space, at 14325 23rd Ave. in Plymouth. The transaction included $350,000 in improvements and six months of gross free rent. Also, Giertsen Co. purchased the 94,000-sq.-ft. Golden Valley II, 8325-8459 10th Ave. N., in Golden Valley. The office warehouse building is remaining multi-tenant. Giertsen is occupying 40,000 sq. ft. of it, bringing the property to full occupancy. Giertsen vacated 20,000 sq. ft. in the Park Industrial Village in Plymouth.
• The office showroom market reported 14.1% vacancy, up from 13.6% at mid-year, making it the highest of all submarkets. Showroom absorbed 81,084 sq. ft. in the second half of 2005. The good news is that several new companies entered the Northwest’s showroom market.
• MMDI signed a lease for 20,000 sq. ft. in Parkers Lake Business Center III in Plymouth. MMDI is a startup company new to the Northwest.
• Suburban Electric took 15,000 sq. ft. at Tech West 55 in Plymouth. Suburban Electric is also a startup company new to the Northwest.
• In another showroom deal, Crane Engineering took 20,000 sq. ft. at Polaris Business Center. Crane came out of space at the Plymouth Business Center.
• Net rental rates were flat at $8.10 for office and $4.50 for warehouse.
• One factor that has hurt this submarket in the past is strong activity in the user building sales market; however, there is not a lot of inventory left and it won’t have as much impact in the future.
• One of the recent sales included Dane Industries purchasing the 63,412-sq.-ft. Ault Building at 7105 Northland Terrace in Brooklyn Park for $3.85 million. It is an office warehouse property. Dane will vacate 40,000 sq. ft. at Nathan 54 in Plymouth some time in 2006.
• First Industrial Realty Trust acquired the vacant 297,220-sq.-ft. Unisource building, 6600 W. Broadway in Brooklyn Park, from Hillcrest Development as an investment deal for $6,025,000. It is a bulk property.
• Western Container purchased the Science Center Drive building at 8801 Science Center Drive in New Hope from CSM Corporation, which takes the building out of the multi-tenant universe. Western Container will be an owner/occupier. Western paid $4,099,410 for the 130,140-sq.-ft. office warehouse building. Western came out of Minneapolis where its former space will be converted to residential condominiums.
• Also, Dave Osborne, owner of Clam Corporation, acquired a 68,576-sq.-ft. office warehouse building at 600 Clydesdale in Medina for $3.2 million from Thorpe Distributing Company. (Thorpe relocated to its new 130,000-sq.-ft. build-to-suit in Rogers.) Clam Corporation relocated from subleased space in Chaska.
• New for-sale buildings that are good quality and priced right move very quickly in the Northwest. For example, the 7120 Northland Terrace building in Brooklyn Park was under contract in three weeks. The sale was scheduled to close in January. The 83,000-sq.-ft. office warehouse property was listed for $4.9 million. With its 24-foot clear height, is it very functional and could be used as multi-tenant.

Outlook

The Northwest, which boasts the lowest vacancy, should see continued improvement and could absorb as much as 1 million square feet in the next 12 months.

Activity in the Northwest will continue at a strong pace. The population in the Rogers, St. Michael, Monticello and Elk River areas continue to grow, which is a boon for businesses. The Northwest also has benefited from companies on the northwest side of Minneapolis that have vacated their now-obsolete space for more functional suburban warehouse space, and that trend will likely continue. Also, recent big development news in the Northwest includes Target’s announcement of a $2 billion office park and mixed-use project in Brooklyn Park and the opening of Cabela’s new super store in Rogers.

Taking advantage of the healthy market conditions, the Northwest could see several new speculative projects in 2006. One project ready to go is in Rogers where individual partners have plans for a 150,000-sq.-ft. building called the 2200 Commerce Building.

Also, a possible addition could move forward in Plymouth where Carlson Real Estate Company has plans to build on to an existing building at the Xenium Distribution Center at 1105 Xenium Lane and Carlson Parkway. Plans call for another 60,000 sq. ft. Carlson is planning a second-quarter 2006 groundbreaking.

Also, one or two developers could pull the plug in Brooklyn Park. Ryan Cos. US Inc., for example, has 15 acres in Brooklyn Park where it could build spec. It would be a quasi-office showroom/warehouse building.

Also, First Industrial has plans to build the 150,000-sq.-ft. Schmidt Lake Business Center in Plymouth. It would be built one block north of Schmidt Lake Road and one block east of Highway 169.

The Rogers market has been hot for industrial development, but the land inventory is pretty much depleted. However, Moen Leuer has an option on 52 acres in nearby Hassen Township, which will be annexed by Rogers.

A new Long Lake bypass (Highway 12) will be completed soon and open up better access to land and buildings in Maple Plain. Look for more activity in the Maple Plain market.

Concessions will taper off and tenant improvements will decrease. It won’t be long before rental rates begin to increase.