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Boosted by the strength of the local economy, investor demand, senior housing and other key criteria, the Twin Cities metro area earned the No. 1 ranking as the Midwestern commercial real estate market with the best outlook heading in 2018, according to a new survey.

Nationally, the Twin Cities area was slotted at No. 25 in the annual Emerging Trends in Real Estate report issued last week by the Urban Land Institute and the PricewaterhouseCoopers accounting firm, down from No. 18 in the 2016 report.

The Emerging Trends outlook survey, now in its 39th year, is compiled from focus group interviews and survey responses from more than 1,600 investors, fund managers, developers, property companies, lenders, brokers, advisers and consultants across the country. It is used by investors to pinpoint the hottest U.S. markets for housing, apartments, office, industrial and other commercial buildings moving forward.

Overall the survey found the market will favor smaller (or secondary) cities, where real estate is more affordable in comparison to primary markets such as New York or Los Angeles, but which can also boast younger skilled workers. Thus the emergence of Salt Lake City (No. 3) and Fort Lauderdale, Fla. (No. 6), into the survey’s Top 10 for the first time.

Seattle moved up from No. 4 to grab the top spot this year, thanks to its job opportunities, diverse economy and young, educated workforce, displacing Austin, Texas, which fell to No. 2.

But in the Midwest, it was the Twin Cities that dominated the 2018 outlook.

Respondents gave high marks to the metro area’s vibrant local economy, investor interest, capital availability, development and redevelopment opportunities, public and private investments and the activity level of its local development community. Based on a scale of 1 (weak) through 5 (strong), Minneapolis-St. Paul scored a 3.87 rating, putting it firmly in the “improving” category.

The metro area beat out Columbus, Ohio (3.78), Indianapolis (3.68) and Des Moines (3.63) for the best 2018 market. Chicago, the Midwest’s only primary U.S. market, netted an outlook of 3.49, regarded as “average.”

The ULI/PwC national rankings are based on the average of two criteria: investment outlook and development outlook. The Twin Cities dropped seven spots to No. 25 because of lowered expectations on the development side, but its status as a popular destination for real estate capital investment is, if anything, getting stronger.

In that regard, the Twin Cities is perceived as among the national elite, the survey found. For instance, the metro ranked third in the United States for office real estate “buy” recommendations and fifth in available development opportunities.

Another area where the Twin Cities’ commercial real estate market is standing out as a national leader is in senior housing. The report cited figures from the National Investment Center for Seniors Housing & Care indicating that Minneapolis-St. Paul and Dallas alone accounted for 12 percent of the 35,000 new U.S. senior housing units from July 2016 to the end of June this year.

ULI Minnesota Executive Director Caren Dewar said the local commercial real estate figures who provided input for this year’s Emerging Trends in Real Estate report identified as strengths the metro’s “diverse economy” as well as “attractive assets such as five sports teams, a great airport and high quality of life. We’re unique in that Minneapolis-St. Paul is really a region unto itself, rather than just a ‘city’ like Pittsburgh or Salt Lake, but it’s still manageable and it’s not overwhelming,” Dewar said.

But at the same time, she said, the “regional” quality of the Twin Cities makes it harder to compete nationally for new development because there is no single “cheerleader” like a mayor, as places like Austin or Seattle can capitalize on.

Dewar also said, “The inability of the state and region to deliver a coherent strategy for planning, funding and delivering a comprehensive transportation plan holds us back. You’ll hear that in focus groups with commercial real estate folks who work in both our market and other markets.”

Don Jacobson is a freelance writer based in St. Paul. He is the former editor of the Minneapolis-St. Paul Real Estate Journal.