As the first quarter of the year wraps up, now is the perfect time to take a look at the commercial real estate market in the Duluth and Superior Area. We will discuss the market statistics and trends. Then, I will discuss my predictions for the coming year.

Quarter 1 Overview

The year started off with several interesting news items. First, we got some more information on the Central High School development. The project is called “Incline Village” and is being developed by New York real estate developer Luzy Ostreicher. The developers intend to build 1,300 Housing Units, as well as a 30,000 sq ft of retail space to serve the residents and the community. The Duluth City Council approved $50 million in tax subsidies to fund infrastructure for the project. Construction is slated to start in the fall of 2025. Read more here.

Then, we learned about another residential development project in Duluth. The waterfront project is on “Lot D” the open lot across from Pier B. Inland Development Partners, a Minneapolis-based real estate development firm, is behind the project. Renderings were released with few details about the project. It seems to be a mix of mid-rise multi-family with retail on the ground floor. It is expected that the developers will seek tax dollars to assist in repairing the seawall at the site. Read more here.

Finally, there are still many rumors circulating about the Cargill Family’s plans. The Family has acquired a substantial amount of property on Park Point. Mayor Roger Reinhart has reached out to the family to no avail. Kathy Cargill talked about the project with the Wall Street Journal, disparaging the city and neighborhood. Both sides seem to be posturing, and details about their plans remain scarce. 

Notable Transactions

Here are some of the most notable transactions from around the Duluth and Superior area for Q1 2024.

• • SCCU Hermantown – 4161 Haines Rd, Hermantown – $1.3 Million – January 23, 2024

• • Dee Independent Cleaners – 1029 E Superior St, Duluth – $910,000 – February 28, 2024

• • The Jade Fountain – 305 N Central Ave, Duluth – $225,000 – February 15, 2024

Notable Listings

Then, we had a few of notable listings in the region.

• • Lake Nebagamon Dairy Queen – 6896 S Lake Ave, Lake Nebagamon – $375,000 – Ryan Bayless

• • Downtown Computer – 1601 London Rd, Duluth – $875,000 – Greg Follmer

• • Wells Fargo Building – 230 W Superior St, Duluth – Undisclosed – Brian Brisky

• • Maurices’ Headquarters – 425 W Superior St, Duluth – Undisclosed – Zachary Binswanger

Q1 Market Statistics

Let’s start with some statistics. During the first quarter, we saw a total of 64 different status changes among commercial properties.

Currently, there are 40 commercial properties currently listed for sale in the Duluth/Superior area. There are 19 general commercial properties for sale (these are properties where the listing agent has not categorized them). 5 are industrial listings, 6 office buildings, 9 retail locations, and 1 special-purpose property. Then, there were 2 general properties that expired without selling.

Now, we will take a look at closings. There were 21 commercial real estate closings recorded in the first quarter. 17 closings were classified as general commercial, 1 office building, and 3 special-purpose properties. Additionally, there is one general commercial property pending sale.

Comparing to Q1 2023

Interestingly, there were fewer sales in the first quarter of 2024 than last year. However, the volume of sales increased substantially from last year. This can be explained by the increased difficulty of getting a commercial loan. Lenders are much more reluctant to lend money for commercial properties now. Therefore, there are fewer transactions this year. However, the market did appreciate, and there were some higher-priced sales last quarter. For example, 4161 Haines Rd (The SCCU Building) in Hermantown sold for $1.3 Million in January & helping drive up the average and median price.

Predictions

From a macro level, I expect the commercial market to remain the same through at least mid-summer. Concerns about inflation are rising again, and I expect commercial lenders to (at minimum) maintain interest rates. There, I think it’s safe to assume buyers will be in short supply. Next, I expect the market to improve leading up to the election in November as election years are historically good for real estate. Finally, longer term there are still concerns for properties with upcoming adjustable rates. This is especially concerning considering inflation concerns and interest rates.

Locally, I am optimistic. There is a lot of interest in the Duluth/Superior area. We have several multi-billion dollar companies investing substantial amounts of money in the community such as the Incline Village, Lot D, and the Cargill’s. Then, factor in the influx of “climate refugees to the area, the St. Luke’s merger, and Essentia expansion. Therefore, I believe the Twin Ports are poised for serious growth over the next five years.

Geographically, I think we will continue to see redevelopment in the Lincoln Park Craft District and development interest even farther West. Additionally, there are also a number of reasons to be excited about Superior. Tower Avenue has seen numerous new restaurants such as Pedro’s, Boulder Tap House, and the rebuilt Wasabi. Plus, the new development on Belknap Street with Noodles & Company should be opening soon as well.

Wrap-Up

Overall, there is a lot to be excited about in the Twin Ports. If you are interested in getting more information about the market, please reach out. If you are thinking of buying or selling a commercial property, give me a call. I would love to help you out.

*All data provided by the National Association of REALTORS Property Resource, and public records. Then, compiled by Ryan Bayless – RE/MAX Results.