The Twin Cities’ industrial sector marked by strong demand and explosive liquidity

Colliers MSP negotiated the sale of Raceway Business Center I in Newport, just southeast of St. Paul. STAG Industrial Holdings LLC purchased the 83,000 square foot warehouse from Starline Properties LLC.

2021 has been an absolute whirlwind for the Minneapolis-St. Paul Industrial Market (MSP). Plummeting capitalization rates, faster-than-ever growing liquidity and a strongly felt shortage of new supply defined last year and will continue to define 2022.

New faces on the development side are entering the market right and left to seize the huge profits to be made from the imbalance between supply and demand. New construction stabilized in six to eight months and institutions designated the MSP as a forward selling market.

Here are some of the key trends to consider when examining the industrial MSP market.

Peter Loehrer, Colliers MSP

Cash growth

Since the last low in 2016, the industrial MSP market has seen an average 30% year-over-year growth in sales volume. 2021 saw almost half a billion dollars more in industrial investment sales than 2020, according to Real Capital Analytics.

Cap Rate Compression

Over the past year, the MSP industrial market has seen unprecedented change.

At the start of 2021, the stabilized low water cap rate was 5.15%, but by the end of the year it had fallen by 82 basis points to 4.33%. Warehouse rates in the $8-$9 NNN range, once rare, are now commonplace; prices per square foot for Class A industrial products are rapidly approaching the $200 per foot mark.

Development opportunity

The pipeline of warehouses under construction or distribution products in MSP has always lagged behind the large US market. Our construction pipeline as a percentage of our total industrial area is 2.4% compared to the US average of 3.8%, and we have 1.29 square feet of industrial space per capita compared to the US average of 1.45.

Rent growth

Ten years ago, Minneapolis was known for having low rent growth. After institutional capitals expansion in the market in 2019, our rents have accelerated as other large landlords are pushing rates to match what institutional capitals asset managers are waiting.

Leasing teams have recently started quoting “negotiable” on rental flyers to avoid missing the mark on rapidly rising rates. Don’t be surprised to see $14 per foot for office space and $8 per foot for warehouse space on well-located new industrial construction projects.


Following a number of trends stemming from the COVID-19 pandemic, MSP has experienced a boom in user activity. The entry of e-commerce giants into our market, high inventory levels and the relocation of key industry sectors all played a role in 2021 being the second best year for market uptake.

Typically, Minneapolis has tenants in the market looking for 6 to 8 million square feet of new space at any one time. In 2021, this number was between 13 and 14 million square feet, largely due to several requirements of 500,000 to 1 million square feet.

In conclusion

The industrial MSP market is defined by its extremely owner-friendly economics. While there is currently a boom in speculative construction, this is by no means enough to satisfy demand. Land prices will continue to rise and cap rates will continue to compress. Anyone who is able should develop industrial real estate on any suitable land – the tenants and the outlet will be there.

Peter Loehrer is a senior capital markets and investment sales associate for Colliers MSP. This article originally appeared in the March 2022 issue of Heartland Real Estate Business magazine.

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