The Minnesota industrial market has seen quarter over quarter growth in all product types since the fourth quarter of 2017.
This growth can be seen in rising rents, continued construction and reposition, as well as capital market trading. What is interesting about this growth, however, is that most of it is coming from within Minnesota, not from outside.
We are continually seeing that companies born and raised in Minnesota are the driving factor in manufacturing and assembly growth in the industrial sector. Local companies have success in their home state because of the strong economy in Minnesota, with a 2.8% unemployment rate, local companies are able to attract and retain, quality, homegrown talent. In short, Minnesota industrial companies are growing and thriving!
This workforce pool availability exists in Minnesota partially because of the culture and importance of family that exists with those born here, or even with those who have transplanted. There is something special about Minnesota, a quality of life that can’t be pinpointed but that is felt by all. Of the people who are born here many stay, those that leave, often come back and those that come from outside, often come and decide to never leave.
Along with being a great place to live, play and stay for a quality workforce, another factor that is contributing to organic industrial growth in the Minnesota market is the fact that there is a finite amount of vacant infill land within the metro area that could become industrial use. Therefore, we are seeing developers and companies getting creative with repositioning obsolete or worn down properties to suit their needs for well-located product.
Locals have an inside track on industrial growth namely because the market is made up of a handful key players moving industrial product to fit the needs of companies looking to grow, expand or relocate in the Twin Cities. State regulatory systems also make it easier for locals navigating zoning, taxes and financial viability when a company is already in Minnesota and looking to grow within the Land of 10,000 lakes.
So, while it seems that Minnesota companies are having no problem growing into and filling nearly every viable industrial manufacturing and assembly product in the Metro, it is interesting to note that outside companies coming into market, which comprise a very minor part of the overall growth, start very small and grow over time. Minnesota does not have major players looking to relocate, start or expand into Minnesota. According to Joel Akason of Greater MSP, looking back at DEED over the past 10 years, “New to market companies start small in MN and in time grow. Although they didn’t start here, they enter on the smaller side and over time and keep growing. This trend is very common with the medical device industry and often they come in so small [Greater MSP doesn’t] recognize [or track] their presence for a year or so.”
The lack of major players entering the market appears to have several root causes. First, there is no incentive being offered by the State of Minnesota to these types of companies to move here. It has been the case, in fact, that the cost to move a company to Minnesota can be grossly prohibitive because of the high property and personal taxes that exist here. Perhaps one of the most obvious reasons we don’t see these players entering the market is Minnesota’s reputation as a frigid tundra and a “flyover” state -only strategic for companies looking to do business in the true prairie states like the Dakotas, Iowa and parts of central Canada. Finally, after weighing the aforementioned and adding on the already tight market, noting very little vacancy and an absence of infill land, Minnesota and the Twin Cities just doesn’t hit the radar for major industrial players thinking about their space plans.
However, even though manufacturing and assembly growth is majority homegrown, we speculate that, along with other well-located, primary second tier cities like Nashville, Austin and Portland, we will continue to see massive growth for the high finish, low clear product type throughout Minnesota with giants like Amazon and WalMart. The infrastructure, transit and location of Minnesota lends itself to becoming an ideal location that is a geographic last mile for the ecommerce boom.
Mark Kolsrud, CPM, SIOR
Colliers International | Minneapolis - St. Paul
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