Home Depot, Fed Ex are building giant warehouses in Rosemount

Development is underway on two sprawling warehouses with a combined nearly 1 million square feet in Rosemount, one of several outer-ring suburbs that have become destinations for developers that are catering to the growing e-commerce industry.

The city recently gave a nod to Scannell Properties, which plans to develop a warehouse on 86 acres on what is now the Rich Valley Golf Course. Initial plans call for a 548,000-square-foot building with trailer parking and loading docks.

Planning documents, which include renderings that identify the tenant as Fed Ex, say the project would be the first major development east of Hwy. 52. It's expected to bring 400 to 600 jobs the city, said Rosemount economic development coordinator Eric Van Oss.

"That's a pretty significant influx of jobs," said Van Oss. "As these facilities grow, I wouldn't be surprised if more jobs come."

Indiana-based Scannell has an international footprint; clients include Amazon, Best Buy and Fed Ex.

Late last month, Atlanta-based Seefried Industrial Properties started construction on a 417,600-square-foot distribution building in Rosemount's business park. The project will also include 210,400 square foot of outdoor storage space. Earlier this year, the Minnesota Department of Employment and Economic Development's Minnesota Investment Fund approved a $375,000 grant for what's being called Home Depot USA. That project, identified in city planning documents as Project Osprey, received approvals in August.

Barbara Bennett, marketing coordinator for Seefried, said that non-disclosure agreements prohibit her from discussing details of the Rosemount project and others. In 2016, she said, the company developed a 2.3 million-square-foot fulfillment center in Shakopee. That project now houses an Amazon fulfillment center.

Van Oss said the city has plenty of developable land that's well suited for such projects, including an industrial park and other locations with a combined 800-plus acres. Interest in those sites, he said, has increased significantly over the past year and a half as demand for warehouse space expands.

"These [kinds of projects] are pretty new for us," he said. "But based on other proposals, they probably won't be the last. We're seeing quite a bit of interest in these larger distribution centers."

Developers are targeting second- and third-ring suburbs where there are still large tracts of developable land. Because the facilities are used for storage and often need loading docks and large parking lots, they tend to be low-rise buildings that can occupy many acres.

Demand for office space in the Twin Cities has been clobbered by the pandemic, but the need for industrial space has soared as retailers and wholesalers look for storage and distribution sites.

Hudson Brothen, director of brokerage services for Cushman Wakefield, said industrial vacancy rates in the Twin Cities are now below 4%.

"Our world's dependence on e-commerce and supply chain issues are combining to make the industrial real estate market in Minnesota the strongest it has ever been," he said. "The shortage of options and high demand for industrial space will continue in Minnesota for years to come."

A decade ago, he said, a 100,00-square-foot project was considered a big deal. Today, he estimates that there are 15 to 30 prospective tenants looking for buildings with 100,000 to 1 million square feet. Already, there are millions of square feet of new development being built around the Twin Cities.

"Industrial has become the 'golden child' both locally and nationwide," he said. "The industrial developers can't keep up with the demand with several projects even seeing some pre-leasing. This is the strongest industrial real estate has been in our Minnesota market."

The proliferation of online shopping and growing supply chain problems are driving demand.

"The ports have been overly crowded since COVID, which is causing a supply chain issue and affects companies' ability to predict when they will get their inventory of goods delivered," he said. "To combat that, companies are stockpiling more of these goods to help combat the unpredictability of the global supply chain. For this reason, companies are naturally needing more space to house their additional inventory orders."

The projects face some construction constraints. Used to be, Brothen said, that an entire facility could be built in eight months. Today, however, it's taking 10 months to get steel deliveries. He recently got quoted a 50-week lead time on tilt-up concrete panels used for warehouse walls.

"If your development is not already under construction, you might not finish construction until early 2023," he said. "And that will cause a strain on already tight demand."