Job Growth Accelerating in Twin Cities Metro Region
- Commercial construction picks up the slack as residential building slows
- Optimism prevails among professional service firms
- National retailers rank Twin Cities high as location for new development
Employment growth surged in the Twin Cities and throughout Minnesota in the first half of 2006, fueling continuing growth in demand for office, industrial, retail and multi-family space in the Twin Cities.
Minnesota employers added 47,000 new jobs from May 2005 to May 2006, dropping the state unemployment rate to a five year low of 3.3%—well below the 4.4% national U.S. rate. The state is on pace to add 40,000 to 50,000 new jobs in 2006, according to state projections. A majority of the job growth will occur in the Twin Cities metropolitan area, which accounts for 63% of all economic activity in the state1.
Housing starts slowed significantly in May, although the median sale price for a new home in the Twin Cities was up 1.1% to $240,000 year over year. Metro area municipalities issued 27% fewer permits in May 2006 versus May 2005 and 8% fewer permits year-to-date through May, versus the first five months of 2005.
Minnesota housing permit activity is projected to decline 6.2% in 2006 versus a 1.6% increase nationwide, according to the Minneapolis Federal Reserve Bank’s economic forecasting model. Fed forecasters see residential demand rebounding in 2007 for a 1.1% increase in Minnesota and 3.3% nationwide. Minnesota’s population is growing slower than the national average, contributing to the state’s lagging housing market according to the Fed.
The top five cities for housing permits issued in May were Brooklyn Park, Woodbury, Blaine, Maple Grove and Otsego. The top cities for planned unit permits—including condominiums, townhomes and apartment buildings—were Brooklyn Park, Woodbury, Blaine, Maple Grove and Lakeville2.
First-half commercial construction activity increased throughout the Twin Cities region led by a resurgence in new speculative multi-tenant office development, expansion of corporate facilities and new retail and industrial development. Industrial companies in Minnesota launched an estimated $1.2 billion worth of construction starts in the first quarter of the year, according to a published report3. Construction industry employment in Minnesota is predicted to grow by 5,200 jobs this year, according to state projections.
Twin Cities Earns High Marks for Brains and Retail Brawn
The Twin Cities ranks high on the list of the brainiest cities in America, according to a recent report by a national publisher of regional business newspapers. BusinessJournals ranked the Twin Cities as the fifth-smartest large urban area in the country. Two reasons cited for the intellectual edge: the presence of the University of Minnesota and the large number of corporate headquarters in the region. Thirty-seven percent of Twin Cities adults are college graduates, the survey noted, the fifth-highest such percentage in the nation4.
Highly educated consumers make for a dynamic retail environment, too. National retailers rank the Twin Cities as the second most attractive area for development in the country, according to the May 2006 issue of Shopping Center News. Only Portland, OR scored higher.
State Legislature Signals ‘All Aboard’ for Metro Transit Projects
Increased funding for transportation and transit projects was a significant feature of the 2006 state bonding bill signed into law by Governor Tim Pawlenty. The bill included $60 million to complete the 40-mile Northstar Commuter Rail line between Big Lake and Minneapolis, scheduled to begin operation in 2009. In addition, $7.8 million was approved for preliminary engineering studies for the Central Corridor Transitway between Minneapolis and St. Paul, and $52.5 million was designated for local bridge replacement and repair in the state.
The State Legislature also agreed to let voters decide in the November elections whether the state should allocate 100% of the sales tax on motor vehicles for transportation projects.
State lawmakers passed a new, more restrictive eminent-domain law, making it more challenging for governmental bodies to use eminent domain for redevelopment purposes.
A study by the Minnesota Chapter of the National Association of Industrial and Office Properties (NAIOP) found that commercial property taxes paid by small businesses in 2005 declined slightly compared with 2004. Minnesota still ranked second in the region for the amount of property taxes paid by a business on a 70,000-sq.-ft. industrial building or similar structure, but the lower rate paid in the state was seen as evidence of improved communication between the business community and the state legislature.
The Outlook
Minnesotans are somewhat cautious at mid-year, questioning which direction the economy will take in light of concerns regarding rising interest rates, inflation, high energy costs, a slowing housing market and increasing volatility in the financial markets.
Minnesota can expect 1.5% job growth in 2006, followed by slower but still positive job growth of 1.2% in 2007, according to the Fed. That compares with projected growth of 1.6% in 2006 and 1.4% in 2007 nationally.
Professional service firms in the Upper Midwest—including the Twin Cities metropolitan area—are optimistic about the coming 12 months, with 55% expecting increased sales over the next 12 months and only 17% projecting decreased sales. Ten percent expect to occupy more office space, while 4% anticipate reduced occupancy. Increased revenues will also translate into increased hiring, said 26% of the firms responding to the June 2006 Survey of Business Conditions for Professional Service Firms conducted by the Minneapolis Federal Reserve Bank and the Minnesota Dept. of Employment and Economic Development (DEED). The survey took the economic pulse of companies in such industries as accounting, law, architecture, engineering and software development located in the Ninth Federal Reserve District5.
(1) Twin Cities share of Minnesota’s overall economic activity taken from The Role Of Metro Areas In The U.S. Economy, Jan. 13, 2006, report by Global Insight Inc. to The U.S. Conference of Mayors
(2) Builders Association of the Twin Cities
(3) St. Paul Pioneer Press, March 24, 2006
(4) America’s Smartest Cities, June 12, 2006, bizjournals.com, American City Business Journals Inc.
(5) The Ninth Federal Reserve District covers Minnesota, North and South Dakota, Montana, northwestern Wisconsin and the Upper Peninsula of Michigan.
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