Market Notes Vol. 13

Apr 3, 2018

Trends And Outlook For 2018

• Tight labor market conditions are creating competition for quality workers.

• Demand for quality space has surged as companies are seeking to attract and retain the best talent.

• Tenant improvement costs have escalated based on a shortage of skilled labor in the trades and strong demand for construction services.

• Although vacancy rates have increased slightly, rental rates have remained steady and have increased in select markets.

• Tax and operating costs have risen, driven, in part, by rising resale values and increased tax valuations.

• New construction still remains in check as net rental rates in the $21.00-$24.00/SF range are required to support new office development, and a minimum of $12.00/SF and $6.00/SF net rental rates are needed to support new office warehouse construction.

• Live, work, play environments have been successful in attracting tenants to such markets like the Minneapolis CBD and West End.

• The new tax law is expected to provide strength in profits and increase capital spending throughout 2018.

• Landlords are adding amenities such as fitness centers, conference areas, shared co-working environments, rooftop decks, and bike storage to attract and retain tenants.

• Longer lease terms of 7-10 years are being sought in an effort to amortize rising tenant improvement costs.

• Flexibility is extremely important to firms seeking expansion as well as contraction and termination rights.

• Co-working environments are being considered with greater frequency by companies both large and small.

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