Absorption by the end of this year is projected to be less than one million sf based on projected 2004 new construction of 1.4 million sf, according to the Bloomington-based commercial real estate company's recent market survey. Last year, the Twin Cities retail market reported positive absorption of 1.9 million sf driven largely by the completion of a record-high 2.2 million sf of new retail construction. In the second half, about 393,000 sf of multi-tenant space, plus the 330,000 sf Ikea store near the Mall of America, should open.
"The drop-off in new retail construction this year is due to the complex retail development process, not slowing demand by consumers or retailers," says Tricia Pitchford, senior associate in retail brokerage at United Properties. New retail also is chasing housing in fast-growing, outer-ring suburbs and developers are ramping up now to complete a projected 2.2 million sf of new retail construction in 2005, Pitchford adds.
Among the national and international retailers expanding in the Twin Cities market lately include Lowe's Home Improvement Centers, CVS, jeweler Tiffany & Co., Swedish furnishings retailer IKEA, German grocery chain ALDI and TJ Maxx's HomeGoods Stores. New restaurant concepts include upscale Italian restaurant Bellanotte and fast-casual dining concepts, such as Zyng Asian Grill, Baja Fresh Mexican Grill and Pei Wei Asian Diner.
This is the third consecutive year Twin Cities retail vacancy rates have remained in the 5% range, well below the national average of 7%, according to United Properties. Community centers reported the lowest retail vacancy rate at 3.3%, holding steady from year-end 2003. Neighborhood centers edged up from 7.3% to 8.1%, while specialty centers dropped from 7.5% to 4.3%.
Regional centers experienced an increase from 2.3% at year-end 2003 to 3.6% at mid-year 2004. The majority of regional centers in the Twin Cities are nearly fully leased, with the exception of Brookdale in Brooklyn Center and Northtown in Blaine, Pitchford reports. The outlet mall vacancy rate plummeted from 16.1% to 8.1% as a result of the struggling Prime Outlets of Woodbury being converted to a community center.
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