For shoppers, it’s a click-to-pay world.
But that doesn’t mean the Twin Cities are filled with vacant homes and packed storefronts.
“We are having our best year on record,” said Joanna Hicks, co-founder of Twin Cities-based Element Commercial Real Estate, a brokerage that specializes in filling retail spaces. .
Hicks said there has been a surge in in-person shopping post-pandemic, driving demand for stores, restaurants and other retail spaces in the Twin Cities. It has long lagged behind suburban shopping malls. These hyperlocal neighborhood nodes are even attracting national investors.
It’s a trend that’s been flying in the face of high-profile headlines about store closures, such as when Nordstrom announced its closure earlier this month. Nordstrom Rack store closures in downtown Minneapolis.
U.S. retailers announced about 4,432 store openings this year, compared with 1,954 closings, according to retail data firm Coresight Research. According to the company, discount stores topped the announced list of openings, followed by restaurants and apparel stores.
These openings, and the return to in-person shopping post-pandemic, are coming at a time when supply chain and workforce constraints make building new projects difficult, time-consuming and expensive. As a result, existing spaces are in high demand.
Twin Cities only built over 500,000 square feet of new retail space in both 2019 and 2020. This is much less than in previous years. In 2021, the pandemic forced consumers almost exclusively online, and only 80,000 square feet were built. It’s about the size of a large grocery store.
174,000 square feet of retail space was scheduled to be built in the first half of this year.
Retail vacancy rates in the Twin Cities are steadily declining as demand outstrips supply in some areas. The average retail vacancy rate for such spaces in the Twin Cities Metro was just 10.1% in the first half of this year, according to Cushman Wakefield.
Absorption, the number of newly signed leases, totaled approximately 416,000 square feet in the first half of the year. This was about the same amount that was absorbed for the whole of 2021.
Demand changed dramatically across the metropolis, with the highest vacancy rates in downtown Minneapolis, where about a third of retail space was vacant. Outlet malls also struggled. The most in-demand segment of retail real estate is neighborhood retailers, with only 7.4% vacancy in the first half of the year.
Similar trends are unfolding nationwide. For example, according to Cushman Wakefield, shopping center vacancy rates have been steadily declining over the past few years, with him down to 6.1% at the end of the second quarter.
These declines are due to a growing number of online retailers realizing it is prudent to maintain physical store operations where consumers can test products, try on clothes, or at least return items. One reason is that it is increasing.
Sarah Martin, executive vice president of Jones Lang LaSalle’s Minneapolis retail team, said the pandemic has led to an increase in online shopping. But now she’s working with a number of local and national companies new to the Twin Cities and looking for space.
“There’s always a trend,” Martin said, citing the proliferation of banks, drive-thru chicken restaurants, burger joints and car washes. “I’m the busiest here he’s been in 20 years.”
Neighborhood retailers are particularly popular. Several areas in northeast Minneapolis are seeing an influx of new tenants. So are St. Paul, Grand Avenue and Highland Park. Brokers say Minneapolis’s North Loop neighborhood has fewer vacant commercial spaces than it did before the pandemic.
Hicks said he recently signed a lease with Cohen Partners. Cohen Partners is moving from his 4,500-square-foot space in the Raleighville, North Loop, to his 11,350-square-foot space in the Northwestern Building, which is expected to be occupied in early 2023.
The company recently contracted Martin Patrick to expand the Colonial Warehouse building.
Jaxen Gray opened in the old Love Your Melon space North Loop in September after co-tenanting with D Nolo, Hicks said. Barre 3 took the remaining space in another nearby building.
The strength of the retail real estate sector is creating a bumper crop of commercial sales across metropolitan areas. The highlight of the year was the sale of Galleria Edina, a 398,585-square-foot luxury shopping precinct.
bought By a local investor group that paid $150 millionThe seller, Houston-based Hines, paid $127 million in 2012.
Hines originally attempted to sell the mall in early 2020, just before the pandemic began, but it led to the closure of stores and restaurants, which slashed demand for commercial properties.
However, since the first quarter of 2020, Galleria has experienced strong leasing momentum, signing deals covering more than 170,000 square feet of space, JLL said. At the time of the transaction, he was 99% leased, an outlier among malls in the area.
Dick Grones of Cambridge Commercial Realty said luxury retailers have few options if they want to locate in the Twin Cities. “High-end retailers have suffered, but not as much as mid-range retailers,” he said.
Shopping malls are also looking for other ways to increase revenue and property value. This includes the sale of food stalls and the conversion of parking lots into apartments and condominiums.
Charlotte, North Carolina-based Asana Partners recently purchased a historic property that includes nearly an entire block along E. Hennepin Avenue in northeast Minneapolis. We also bought Wayzata’s retail center. The company declined to discuss plans for the Twin Cities.
Deb Carlson, senior director of Cushman & Wakefield’s retail team, sees a resurgence in consumer interest in small, independent retailers as a strength in retail real estate.
They are also in increasing demand from service providers ranging from dentists and doctors to manicurists and masseurs. Even businesses that rely on online sales are looking for physical space to showcase and promote their products.
For example, Amazon Fresh, an online grocery store, now has stores across the country, including several in the Twin Cities.
“There have been big changes in retail,” says Carlson. “And there is a strong consumer need to come back to stores.”