Steady. That’s the word Tom Tracy, executive director with the Minneapolis office of Cushman & Wakefield, uses to describe the office sector in his city.
And the numbers back him up: In the first half of 2019, the Twin Cities area absorbed about 560,000 square feet of office space.
This doesn’t qualify as a boom. But it is good activity. And, in good news for this sector, Tracy says he expects the Minneapolis-area office market to remain as steady throughout the rest of 2019 and into 2020.
“The market isn’t necessarily super robust,” Tracy said. “But we do like that it is steady. There is steady leasing activity in the market. There is a lot of investment sales activity. And there are some exciting projects going on, both new construction and a lot of redevelopment of older office space. The next 12 months look to be interesting ones for us.”
That redevelopment part is interesting. In markets across the Midwest, developers are modernizing older office space. This is important to companies that want to attract and retain the best talent. These companies need offices that look new and have the amenities that today’s workers want.
If they can’t offer that? They’ll struggle when competing for the best workers. That’s why there is so much office redevelopment activity taking place in and around downtown Minneapolis today.
Tracy calls them “existing properties that have been reimagined and established as almost new properties.”
Fifth Street Towers, a two-building office property in downtown Minneapolis, is a good example. A two-year renovation project ended at the towers in 2017. The 1.1-million-square-foot property received large-screen TVs, an amenity floor, lounge space, a bar that can be rented, new conference rooms and a wellness center. That wellness center includes napping pods for employees who need a brief break from the work day.
The Baker Center, a four-building complex also in downtown Minneapolis, received its own renovation. It included the addition of a media wall, two-story entry atrium and a rooftop deck that offers panoramic views of downtown Minneapolis. The new fitness center that is part of an entire amenity floor is a highlight of this modernization project.
Expect more of this. Wildamere recently purchased the two-tower Oracle & International Center in downtown Minneapolis and is planning its own upgrades to this iconic property. Lingerfelt Commonwealth Partners earlier this year purchased Two22, a 730,000-square-foot, 42-floor office tower in Minneapolis. Lingerfelt is planning renovations to this 1985 property.
“There is a whole slew of new redevelopments planned for Minneapolis because of recent office sales,” Tracy said.
Also earlier this year, Starwood Capital Group purchased the 57-story Wells Fargo Center in downtown Minneapolis, spending $315 million to do so. Starwood plans its own renovations for this building, one that will add modern amenities to the space.
“They will be changing the look and feel of that lobby,” Tracy said. “Right now, it has the feel of a big, open bank lobby. Starwood is looking to change the perception of that building in town. These are all exciting projects for our city.”
Is this normal activity for downtown Minneapolis? Maybe not. Tracy says that the number of redevelopment projects in the city’s office market is higher than usual. There isn’t as much ground-up development taking place here, but the redevelopment projects will change the local office market.
“When you talk about the square footage in office space that has either seen redevelopment or is in the process of being redeveloped, there is a lot of activity,” Tracy said. “These redevelopments are almost like adding new buildings to the market. It creates competition. It creates a movement of tenants. There is new interest from tenants about what is happening in the market.”
What new amenities do the owners of these office properties need to add to attract tenants? Tracy says that is becoming difficult for owners to set themselves apart today.
That’s because there are so many redevelopment projects now taking place. Tracy says that five years ago, if you added a fitness center, tenant lounge and comfortable lobby, your office renovation would have stood out and attracted the attention of potential new tenants. As Tracy says, you would have been one of the few renovation projects in town.
“The opportunity now is to continue to evolve the amenities you offer and how those amenities are incorporated into your office building,” Tracy said. “You will continue to see some of the same amenities and features going forward. But what is your take on those? What look and feel and vibe are you trying to create?”
Tracy says that today’s office tenants do want spaces that are comfortable. But they also want these spaces to sophisticated. This doesn’t mean formal or overly luxurious. But companies want space that is at least somewhat sophisticated, space that makes it clear that this is an office in which people are coming to work, that the building is a place of commerce.
Tracy says that he expects the Minneapolis office market to remain a busy one, and that the area will see a steady flow of office absorption in the coming months.
In the first half of 2019, the Minneapolis CBD absorbed 207,000 square feet of office space. Tracy said that he expects that number to increase slightly in the second half of the year and expects to see up to 500,000 square feet of absorption in the sector for all of 2019.
“That is typical of the last couple of years, and I don’t see any reason why this pace wouldn’t continue,” Tracy said. “Based on the health of the market, I don’t see why that wouldn’t happen.”