The increasing need for industrial space. 

Parkway Pointe I, a 21,206-square-foot multi-tenant industrial building at 4463 White Bear Parkway in White Bear Lake was built in 1993. When this building was built, rental rates were $9.50 office / $4.75 warehouse base rate and received a positive cash flow.

If this exact building were built today, the rates needed to achieve the same positive return would be $12.50 for office / $8.00 warehouse base rate. Which would represent a 131% increase in office rent and 179% increase in warehouse rent.

The main reason for this increase is substantial surges in construction costs. The shell costs to deliver smaller industrial buildings has gone from $23.00 to $85.00 per square foot for buildings 30,000 to 70,000-square-feet. In addition, tenant improvements, or custom office build-outs, have increased from $20.00 to $60.00 per square foot.

Although the Twin Cities market is currently experiencing very low single digit vacancy for industrial real estate, industrial multi-tenant buildings are not being delivered below 80,000 square feet because the rates cannot be competitive.

This may make it very difficult for smaller tenants in the future because often larger buildings have minimum bays sizes of 7,200, 10,000 or 15,000 square feet. Traditionally, smaller multi-tenant buildings of 30,000 to 70,000 square feet would have minimum bay sizes of 5,000 square feet.

Currently, in the North East submarket of the Twin Cities, if a company is looking for 5,000-square feet they would only have 5 total bays to choose from and zero bays with 18-foot clear height or above.

In summary, it is imperative that new industrial buildings be built because of ongoing low vacancy rates and continual small user need. Developers and brokers alike have identified that multi-tenant, small user product is a real need in the North East market and are working towards hopeful solutions that are currently in the pipeline.

To learn more about these exciting upcoming developments please contact Mike Brass 612-750-4313.

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