Despite its reputation for high property taxes, Minnesota's strong, diverse economy has attracted more than its share of retail and industrial development.

There has been an impressive increase in power centers in the Twin Cities, according to United Properties, a Bloomington, Minn.-based commercial real estate firm.

"In general, the Minneapolis real estate market appears to be healthy and strong," says Stuart Ackerberg, president of The Ackerberg Group, Minneapolis.

In the Twin Cities' metropolitan office market, vacancy rates fell to an 11-year low of 11.6%. Officials with Towle Real Estate Co., a Minneapolis-based commercial real estate firm, credit steady employment growth for the trend.

Retail

If all of the 15 projected power centers are built over the next several years, they will add more than 10% to the Twin Cities retail market, according to Towle.

Some say this retailing explosion is a result of the national and international attention brought to Minnesota by the Mall of America.

"The Mall of America appears to be a significant success, both with regards to the number of visitors, as well as the reported sales from the retailers," says Ackerberg.

Linda Zelm, a retail broker with Towle, says few markets are experiencing the boom that the Twin Cities are seeing.

Most of the power centers are anchored by fast-growing category killer retailers, such as Best Buy, Circuit City, Office Depot, Media Play, Kohl's and Sportmart. The category killers new to the Twin Cities market have created a tremendous demand for space.

In most shopping centers, the 25,000 sq. ft. spots get filled faster than the 3,000 sq. ft. spots, says Kelly Doran, a spokesman for Boca Raton, Fla.-based Robert Muir.

Competition is heating up. For instance, Muir is starting to build Tamarack Village in Woodbury, a 750,000 sq. ft. project less than two miles from Muir's earlier project, Woodbury Village. Meanwhile, Woodbridge Properties' Dave Weir wants to build a 400,000 sq. ft. power center in Roseville, but the Roseville City Council refuses to rezone the property to accommodate his plans.

"The council still wants the land to be used for high technology office uses," says Dennis Welsch, who works in Roseville's community development office.

Industrial

Roseville's chances of landing just such a high technology office development are improving all the time, because the Twin Cities' industrial real estate market is seeing falling vacancy rates and new construction at a near-record pace.

Dave Carland, a vice president at CSM Corp., a St. Paul-based developer, credits "a robust local economy," for the high demand of industrial space. CSM Corp. is working on projects in St. Paul's Midway area, Arden Hills, Brooklyn Park, Eden Prairie, Oakdale and Minneapolis.

However, those who felt there would be plenty of empty space available were in for a surprise.

"There was an overabundance of space, and then all of sudden, it was all absorbed," says Kent Carlson, a vice president with Ryan Construction, which is developing projects in a big industrial park in Roseville.

That has led to a return to building on "spec" or speculating in real estate development. One active spec developer is Minnetonka, Minn.-based Opus Corp., which is building projects in Eagan and Plymouth.

According to Ackerberg, the most active market for new development is with industrial, distribution and office/warehouse type facilities.

Rising rents should attract more developers, just as they have attracted investors to buy industrial properties. Last year alone, more than 10% of the Twin Cities' industrial space was sold, most of it to two buyers, First Industrial Realty Trust of Chicago and AMB Institutional Realty of San Francisco.

"It's far more challenging to find new properties," says Duane Lund, senior regional director for First Industrial and head of its Twin Cities regional office.

One of the hottest industrial development areas these days is in St. Paul's Midway area - Westgate Industrial Park. Although it did get off to a slow start, it has since become one of the premiere parks in the Twin Cities, says Carland of CSM Corp.

"We've seen more demand in the last two years than in the previous six," says Mike Strand, a spokesman for the St. Paul Port Authority.

Office

According to Towle, the office market is also improving. Downtown Minneapolis has one of the tightest office markets in the country, according to Towle's second quarter office market update.

But vacancy rates will probably not decline much further, because many downtown Minneapolis landlords have set aside vacant space for their expanding tenants, says Mark Reiling, president of Towle. In contrast to the "frenzy of relocations" that has characterized the multitenant office market over the last few years, the tenant shuffle has slowed, due to limited availability for large spaces and lack of new significant office construction.

Although downtown St. Paul's office market continues to struggle with a high vacancy rate, Towle says that building owners are beginning to regain confidence in the market.

Both downtown areas have seen significant properties sold or put up for sale in recent months. In its first half of 1995 report, United Properties said there are now about 24 multitenant office buildings for sale in the Twin Cities.