The influx of young professionals and Minnesota legacy companies into older downtown multitenant office buildings has led to an improvement in the Minneapolis-St. Paul office markets. This commercial real estate market was trailing the post-recession economic recovery in Minnesota.
The metro-wide office vacancy rate was 15.7 percent, according to Cassidy Turley's second-quarter Office Market Snapshot. This vacancy rate was below 16 percent for the first time since 2007.
The office market also showed 385,000 square feet of net absorption in the second quarter of 2014, measuring the increase in the total amount of leased office space compared to the first four quarter of this year. This is the second highest rate in a single quarter since the beginning of the recession and most likely reflects an increase in pent-up demand employer confidence.
Statistics had not shown the improvement in the office real estate market in the last 12 months because of firms redesigning their existing space. However, businesses are now entering long-term deals and investing in tenant improvements.
The Class A office market, often defined as luxury office space in downtown buildings and top-tier suburban properties, has shown the majority of the absorption. However, there has also been 113,000 square feet of absorption in Class B buildings by the entry of professional firms in older buildings in Minneapolis' North Loop and other downtown areas.
Younger professionals entering Minneapolis have been an important factor in this improving market and demand collaborative, open floor plans in office real estate from developers and owners along with access to mass transit. This has sparked expensive conversions of dormant property such as TractorWorks, the Loose Wiles Building and the 510 Marquette.
The historic 510 Marquette Building, the original home to the Minneapolis Federal Reserve Bank, was purchased for $7 million and is undergoing extensive improvements. Being adjacent to the Nicollet light-rail stop helped lure two major tenants, the Campbell Mithun advertising agency and the Weber Shandwick public relations firm in the spring. It has 100 percent occupancy although renovations will not be finished until 2015.
This improving real estate market presents opportunities for businesses and developers. However, the changing demands for these properties also show challenges where legal advice may be helpful.
Source: Minneapolis Star Tribune, "Office real estate market finally catches up," Don Jacobson, July 24, 2014