Big Projects in Minneapolis
Boost the Commercial Sector

A handful of super-sized development projects slated for the Minneapolis region suggest a hearty Midwestern confidence in the area's strengthening commercial real-estate market, though some sectors haven't fully recovered from the downturn.

The Twin Cities region, anchored by Minneapolis and St. Paul, Minn., and located along the Mississippi River, is home to about 17 Fortune 500 companies and a range of industries that stretch well beyond the area's agricultural roots, according to Property & Portfolio Research, a Boston-based real-estate research firm. The diversity of the economy, which includes medical-device makers, technology companies and food processors, helped the area weather some manufacturing job losses that began in 2000, said Toby Madden, regional economist with the Federal Reserve Bank of Minneapolis. The economy experienced only a mild recession before starting to ramp up again in 2002, he said.

The Mall of America, a sprawling shopping and entertainment complex that already includes hundreds of retailers as well as an indoor roller coaster and aquarium, plans an expansion project valued at about $1.5 billion.

Still, some big bets are being made on the market. Expansion plans with a healthy dollop of Las Vegas flash and an estimated project value of $1.5 billion will more than double the size of the Mall of America in suburban Bloomington, Minn., and include an ice rink, 1,500 hotel rooms and a concert hall, according to Greg Hollenkamp, president of KKE Architects in Minneapolis, which is designing the project. Construction is expected to begin in the fall, he said.

And Minneapolis-based retailing giant Target Corp., one of the area's largest employers, has tentative plans valued at nearly $2 billion to build a pedestrian-friendly multi-use community on about 335 acres in suburban Brooklyn Park, Minn., over the next 10 to 15 years, according to Lena Michaud, a Target spokeswoman. The project could contain as much as eight million square feet of office space -- about half of which would be used to meet the expanding company's needs -- as well as 3,000 residential units and two hotels.

The growth of companies such as Target and medical-device maker Medtronic Inc. "really drives the recovery of our market," said Tim Murnane, senior vice president and general manager of Opus Northwest LLC, a regional unit of Opus Group. This spring Opus, a Minneapolis-based real-estate development company, will begin building the first phase of a 1.5-million-square-foot headquarters for Medtronic's cardiac rhythm-management business in suburban Mounds View, Minn.

For now, the improvement in the warehouse sector appears particularly promising. Occupancy was expected to increase by about two million square feet in 2005, the highest absorption level since the mid-1990s, according to PPR. Still, increasing warehouse construction -- some of it speculative -- could offset demand, PPR said. A slew of new retail construction also pushed economic vacancies up in the third quarter from the year-earlier period.

The office sector is expected to strengthen, with vacancy rates of 19.4% in the third quarter, off their peak of 20.8% in 2003, according to PPR. In recent years, low borrowing costs prompted some companies to build new offices and that -- along with a lack of significant geographical barriers on the region's plains -- has held back rents and the prices paid for office buildings, said Whitney Peyton, senior managing director of CB Richard Ellis in Minneapolis.

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