It’s no secret that a growing number of tenants are choosing higher-quality Class-A office space when making leasing decisions today. But a new report from Avison Young shows just how strong this trend has become in the Minneapolis-St. Paul market.
As Avison Young notes in its report, a growing number of tenants have sought higher-quality office spaces since the start of the COVID pandemic.
The theory is that by offering their employees quality office spaces with high-end amenities, companies will be able to convince these workers to return to the office at least on a part-time basis.
Avison Young said that what it terms new-age office buildings — office properties built after 2010 — saw steadily increasing leasing volume each year from 2021 through 2023 in the Minneapolis-St. Paul market.
Last year, though, saw a change. Avison Young reported that office leasing activity fell across all office property types except for those properties built in the next-newest era of the 1990s and 2000s.
What’s behind last year’s shift? Avison Young pointed to a limited supply of newer buildings.
Tenants don’t have as many choices today if they are seeking office space in the Twin Cities area built in 2010 or later. Vacancy rates in these properties are lower than they are in older office buildings. Because of this, many are choosing space in the next-newest range of office buildings, those built in the 1990s and early 2000s.
Avison Young predicts that this trend will continue until developers add newer office properties to the market. When will that happen? Not anytime soon, considering the struggles of the office sector not only in Minneapolis and St. Paul but across the country.
This shortage of newer buildings is good news, though, for what Avison Young terms the next-newest tier of office properties, those built in the 1990s and early 2000s. These properties should continue to see an increase in leasing volume in the coming years, Avison Young said.
What do the office leasing numbers in the Minneapolis-St. Paul market show?
In 2024, tenants leased 1.4 million square feet of office space built in the 1990s and early 2000s in the Twin Cities market. In the same year, tenants only leased 0.2 million square feet in office buildings built in 2010 and later. That’s a significant drop from 2023, when this figure was closer to 2 million square feet.
What’s interesting is that in 2024, tenants leased 1.9 million square feet in office buildings built in the 1970s and 1980s in the Twin Cities market. That amount of leasing activity beats out all other era of Twin Cities office properties.
But these buildings have seen their office leasing activity drop significantly in recent years. In 2015, tenants leased more than 6 million square feet in office properties of that era in the Twin Cities market.
