Minnesota is one of the most prosperous Midwestern states, and over the years it has made significant strides moving from a resource-based to a modern and future-oriented economy.
The North Star state has a strong job market and has become one of the top 5 destinations in the United States for job seekers who prioritize career opportunities as well as general affordability. Ongoing employment gains have positioned Minnesota as one of the best performing labor markets in the nation, and this scenario has set the foundation for a thriving real estate market.
The state's best selling points include a central location within a 4-hour flight of most major US cities, a strong talent pool with skills in high-growth industries, and a competitive tax structure.
As a result, the Land of the 10,000 Lakes has a dynamic business scene that has been making ongoing improvements in both the number and the reach of local businesses. Even during 2020 and 2021, when business activity experienced a generalized slowdown, the state registered record numbers of new business registrations. These new ventures also attracted the attention of investors, generating record amounts of venture capital investment, particularly into tech and next-gen healthcare verticals.
In addition to recently created startups, many large corporations are headquartered here, including General Mills, Target, 3M, Best Buy, Cargill, Mayo Clinic, and US Bancorp. In fact, Minnesota has more Fortune 500 companies per capita than any other state in the nation.
From the mid 2010s, the local commercial property market has been growing up to five times faster than other similar markets in larger cities, like Chicago or Boston. Almost a decade later, the Minnesota commercial real estate market remains attractive to investors. This is especially applicable to industrial assets, given the state's position as a leading manufacturer and its robust infrastructure, with multiple commercial ports, airports, and Class I rail lines.
Office Market in Minnesota
Saint Paul and Minneapolis are home to a large percentage of the state's office floor space. This area is also known as the Twin Cities office market. In total, office space amounts to nearly 80 million square feet - 30 million in Minneapolis and around 6 million in St Paul, and the rest in suburban areas.
Annual improvements were evident on all key indicators throughout the 2010s, and towards the end of the decade, the Twin Cities was listed as the top commercial real estate market in the Midwest.
Office Space in Minneapolis & Saint Paul
Recent trends point at:
- Office to residential conversions in the CBD, which have helped remove long-standing vacant space from the city's inventory.
- Corporates downsizing their premises across the board, mainly due to the impact of hybrid work models.
- Growth of investment activity in suburban areas.
- Vacancy rates climbing to averages of nearly 25%, although they are lower outside of the Twin Cities CBDs.
- Stable rents over a five-year period, reaching averages of $28 / psf across the metro area and $32 / psf for Class A offices.
Retail & Industrial Market in Minnesota
In the Twin Cities, vacancy rates for retail properties reached their lowest historical values in the mid 2010s, but have since increased to a double-digit average of just under 10%. The differences in vacant retail space are noticeable between Minneapolis CBD (where vacancies are near 20%), and St Paul's CBD, which has the lowest vacancy in the metro area at around 3.5%.
The industrial market ranks 13th in the nation in terms of size, with more than 340 million square feet. This market exhibited a balanced supply-to-demand ratio until 2021, but from that point onward, absorption vastly exceeded the amount of product coming into the market. To meet demand, the market expanded rapidly, with the majority of new additions being in northwest Minneapolis.
At around the same time, limited availability led to a spike in asking rents, which have continued increasing since to current averages of $7.5 / psf. The dramatic increases are expected to subside and find a more stable growth pace that accounts for rises in construction costs and higher interest rates.
Vacancy rates are tight at 3%, dropping from highs of 8% at the start of this five-year period.
Tax Breaks, Business Incentives and Programs
The state of Minnesota offers a range of financial incentives and support programs aimed to help small and medium-sized businesses get established in the local real estate market. Some of the most notable incentive schemes include the following:
- Minnesota Job Creation fund, which can assist with cash grants that partly cover the expenses associated with the creation of new employment positions.
- The Minnesota Investment Fund, is available in designated communities to help finance business expansion in the manufacturing, technology, and industrial sectors.
- Launch Minnesota, a series of grants that target businesses that are heavily invested in technology and innovation.
- Emerging Entrepreneur loans, to help cover startup and expansion costs of businesses owned or operated by groups that would traditionally face barriers to entrepreneurship.
- Tax credits for R&D activities conducted in the state, for businesses located in Opportunity Zones, and for film and digital media projects.
Loans, micro-loans and other support schemes are available locally. You can see a breakdown by area on the Minnesota Chamber of Commerce website.