News Release
Investors Take Upbeat View of Twin Cities Commercial Real Estate Market
United Properties ‘Outlook’ Investment Market Study Projects Strong Year For Commercial Real Estate Sales
MINNEAPOLIS (Feb. 11, 2004) — Investors are underwriting a recovery in the Twin Cities commercial real estate investment market, to the point that prices for in-demand properties are trending higher, according to United Properties’ year-end 2003 Outlook market study. The Twin Cities-based commercial real estate company released its final year-end 2003 market study last week. The report includes summaries of the metro area’s investment, office, industrial, retail, medical office and multi-family property markets. The complete report is available at www.uproperties.com.
“Investors are circling the Twin Cities, and premier properties of all types are commanding substantial price increases, especially those with good credit tenants and longer lease terms,” said Scott Pollock, vice president, United Properties Investment Sales. “Market conditions the second half of 2003 favored large institutional investors with access to lower-cost capital structures, fueled by an low interest rates and strong demand. But investors of all types have shown increasing interest in allocating larger portions of their investment portfolios to commercial real estate to balance against the more volatile equity markets.”
Retail properties, particularly grocery-anchored centers, remain most in favor among investors. However, the largest investment sales transaction in 2003 was for Opus’ The Shoppes at Arbor Lakes, the only lifestyle retail center in the area. Prudential paid $87 million for the property in December, only a few months after the 411,000 square foot center’s opening.
Investor Interest Increasing For Broader Range of Properties
Multifamily rental properties are a strong second to retail, while industrial properties, particularly bulk warehouse and office warehouse, continue to be in demand. Stabilized office buildings, with good credit tenants, high occupancy levels and a strong rent roll schedule, are also commanding top investor interest — and top dollars. Interest is also increasing, particularly among institutional investors, in a broader array of property types such as unanchored retail shopping centers and office and industrial properties with higher than average vacancies, non-credit tenants and deferred maintenance issues. “
As has been the case throughout the past couple of years, investor interest in the most in-demand types of real estate continues to exceed the property supply,” Pollock said. “As a result, investors are growing increasingly creative in their use of alternative investment strategies.”
In response to the increased competition for commercial real estate, some investors are expanding their criteria to properties in the redevelopment or mixed-use category. Substantial consideration is being given to office buildings with substantial challenges, such as significant vacancy levels and higher capital costs, although even those properties are in short supply.
Private Investors Are Adding Dollars to The Pool Of Available Investment Capital
The overall pool of available capital for investment in commercial real estate continues to grow, even as other types of asset categories — the equity markets in particular — register healthy gains. Much of the increase in investment capital is coming from individual investors eager to participate in the stability and anticipated cash returns available from commercial real estate holdings.
2004 Investment Outlook Positive
Last year ended with slightly fewer major transactions taking place than some observers anticipated. However, many of those transactions will likely close the first half of 2004.
“Investor interest in grocery-anchored retail will continue to be strongest, with some increased carryover into other types of retail properties,” Pollock said. “Demand for multifamily properties will likely continue to exceed supply in all property types.”
The market for stabilized office properties will remain strong among institutional and private investors, alike. Investors willing to bet on the strength of the economic recovery may be more active in putting money into the “second tier” of office buildings — those with more significant leasing and operating challenges. There are few of these properties available in the Twin Cities today. Adding to the demand is that no substantial increase in new office building construction is anticipated for several years.
Several major office warehouse and bulk warehouse transactions are likely to close in the industrial market in the first half of 2004. Investor demand for office-showroom industrial properties may regain some momentum, but the greatest increase in demand will likely be postponed until the office market more generally recovers one to two years in the future.
If commercial mortgage interest rates rise modestly in 2004, as is widely expected, institutional investors will maintain their competitive advantage over private investors.
About Outlook
United Properties releases its Outlook report twice annually and is the only Twin Cities commercial real estate company to publish comprehensive market data at the calendar mid-year and year-end marks. Outlook includes information for all commercial property types, including office, retail, industrial, multi-family and medical office. The report also features an up-to-date overview of the Twin Cities economy and an analysis of the market's investment trends. The complete report is available on the Web at www.uproperties.com. A printed summary of the report may also be requested at the Website.
About United Properties
United Properties is a full-service commercial real estate company with more than 400 employees and 26.5 million square feet of office, industrial, retail and multi-family properties under management. The company specializes in diverse real estate services, including brokerage, property management, corporate real estate services, facility services, construction management, development services and investment services.
Based in the Twin Cities, United Properties serves other markets through its affiliations with ONCOR International, an organization of commercial real estate companies serving more than 200 markets throughout the world, and ChainLinks Professional Resource Network, the largest retail-only full-service real estate provider in North America. United Properties is located on the Web at www.uproperties.com.
Media Contacts
Martha Nevanen
Vice President, Marketing Communications
952-893-7539
mnevanen@uproperties.com
Jessie Folkens
Sr. Communications Consultant
952-837-8516
jfolkens@uproperties.com