The Minneapolis-St. Paul market is seeing the same challenges in the office sector as are cities across the Midwest and the nation. That means that vacancies are high and showing no signs of falling soon.
According to the second-quarter office report released last week by Colliers, office vacancy rates in the Twin Cities market increased by 100 basis points in the second quarter and are up 150 basis points on a year-over-year basis.
That comes out to an increase in vacancy rates of 23% when compared to the second quarter of last year. The overall office vacancy rate for the Twin Cities regionreached 14.8% in the second quarter, up from 13.3% a year ago.
The news was better in the suburbs, with Colliers reporting that the office vacancy rate for the Twin Cities’ suburban markets stood at a lower 11.1%, in part because of construction crews repurposing old, outdated properties.
Downtown office vacancies, though, continued to rise. Colliers said that the vacancy rate for the Minneapolis CBD was 22.6% while the rate stood at 21.1% in St. Paul’s CBD.
With vacancy rates so high, it’s not surprising that the Minneapolis-St. Paul office sector saw negative net absorption in the second quarter. According to Colliers, the market’s absorption figure came in at negative-442,900 square feet during the quarter.
Construction activity continues to slow, too, with Colliers reporting only 35,600 square feet of office space under construction in the market during the second quarter. That’s down from a significantly higher 595,900 square feet of office space under construction during the same quarter last year.
The overall asking lease rate stood at $29.25 a square foot, up from an average of $28.71 a square foot in the first quarter of this year but down from $31.78 a square foot a year ago.
The biggest development in Minneapolis proper was the completion of the North Loop Green office building in the city’s North Loop neighborhood. This office development is 33% preleased, with tenants expected to occupy the space during the next year, another boon to the already strong North Loop market.
In the suburbs, a repurposing trend is taking hold. Colliers reported that during the second quarter, two small office buildings in the suburbs were sold to community. The Blue Cross Blue Shield camps in Eagan was sold with plans for partial industrial redevelopment.
