Twin Cities retail stores, hotels and offices saw vacancy rates rise in the second half of last year, signaling continued difficulties for parts of the commercial real estate sector this year, according to a newly released research report by Cushman & Wakefield.
While industrial and apartment properties fared better, the January 2021 Compass Report shows the "economic headwinds brought on by the pandemic had varying levels of impact on leasing and sales volume across asset classes in the Twin Cities," said Mike Ohmes, managing principal for Cushman & Wakefield's Minneapolis-St. Paul office.
He expects debt and equity investments to slowly return this year and hopes "to see increasing commercial real estate activity for all property sectors gaining strength as 2021 progresses."
For now, Cushman & Wakefield, which manages more than 4 billion square feet of real estate globally, is predicting that commercial developers will add 1.3 million square feet in new construction to the Twin Cities later this year.
While apartment- and e-commerce-driven real estate performed well, occupancy and vacancy rates for Twin Cities hotels, retail stores and offices were hard hit during the second half of 2020 because of the pandemic.
Only 33% of all hotel guest rooms were occupied last year and more than 45 Minnesota hotels temporarily shut their doors. That and mounting debt prompted a "slowdown" in sales transactions, the Compass report found.
Local vacancy rates in the office sector rose to 18.5% from 17% during the second half of 2020. New leasing activity plunged 42% from a year ago as "lingering uncertainty about future space needs largely slowed real estate decisions by occupiers," the Compass report said.
Most businesses across the Twin Cities are maintaining remote working arrangements due to the pandemic, leaving downtown office towers and suburban office parks largely vacant. Some businesses have sought rent relief from landlords.
