The Twin Cities: A Strong Market, But With Some Adjustments It Could Be Great
The Twin Cities is a growth market. But it could be better, according to the speakers at Bisnow's first-ever Twin Cities State of the Market event at 510 Marquette. That is partly because Minneapolis/St. Paul have not often been the object of institutional and international investors, and because investment in transit has been lacking.
NGKF executive managing director Jim Damiani, Opus Development Co. vice president Matt Rauenhorst, Duke Realty vice president of leasing and development Josh Budish and Ryan Cos. president/North Collin Barr joined us to discuss the Twin Cities' business climate.
The panelists said the Twin Cities' growth is good, but not great, though the region is getting more recognition from international capital than ever before. The economy is diversified and steady, and while it is smaller than major markets in places like Texas or the West Coast, the Twin Cities are thriving — especially in multifamily, which is attracting institutional owners.
Generally there has not been overbuilding in any Twin Cities market, the speakers also said. There has not been that much spec office development compared to previous cycles. The industrial sector is a lot more robust, especially in terms of spec development.
Development challenges include the cost of construction, which is increasing faster than the compression of cap rates. Land prices are rising as well, and there are not as many development sites as there need to be. Finding dirt closer in can be particularly hard. The entitlement process also seems to be more of a challenge than previously.
Larkin Hoffman president Bill Griffith, DLR Group principal of hospitality design Ed Wilms, The Doran Cos. founder and principal Kelly Doran, Minneapolis Regional Chamber of Commerce CEO Jonathan Weinhagen and Mid-America Real Estate principal Mike Sims spoke about the evolution of the Twin Cities.
The Twin Cities might have a steady and growing economy, but our experts said it is lagging certain other markets (Denver most notably) in being attractive to talented younger workers and the companies that employ them.
Transit is part of that problem. It is an important factor in the future evolution of the Twin Cities, since younger workers want transit, and transit is a proven spur to real estate development.
But the region is not making the investments that other comparable markets are making in multimodal transit, and that might negatively impact the growth of Minneapolis and St. Paul and the suburbs in the longer run. Any city worth its salt has multimodal transit, and self-driving cars are not going to solve transit problems, the speakers said.
Minneapolis retail and its woes were also top of mind for the Evolution of the Twin Cities panelists, who nevertheless said that in the long run, the closing of Macy's in Downtown Minneapolis will be good for that particular spot, since Macy's represented the past of retail, not the future — which will be more interactive and more experiential. Some of the older concepts, they said, need to go away.
Minnesota Wild chief operating officer Matt Majka, who gave the keynote, said Minnesota went seven years in the 1990s without professional hockey — a travesty — until the Wild came to St. Paul. Without a new arena, the team would not have moved here.
In the years since the first season in 2000-01, the team's presence has had an impact on commercial real estate around the Xcel Energy Center, he said.
Part of the reason for the success of the team is that it listens to its fans, Majka said. It is true to the traditions of hockey in the state, the pride and heritage here before the Wild ever arrived.
Majka said any great brand has integrity and a sense of place. The State of Hockey is Minnesota, and the epicenter is the Xcel Energy Center.