The Minneapolis-St. Paul office market is showing early signs of stability, with vacancy beginning to ease and new construction remaining limited, according to the latest research from Newmark.
But leasing activity continues to lag historical averages, underscoring the challenges facing landlords as companies adjust their office footprints to accommodate hybrid work.
In its third-quarter 2026 Minneapolis-St. Paul Office Market Trends report, Newmark said the region recorded two consecutive quarters of positive net absorption in multitenant office buildings. The market also benefited from a limited development pipeline, which has reduced the amount of new space competing for tenants.
Still, the recovery remains uneven. Tenants continue to have considerable negotiating power, particularly in downtown Minneapolis, where elevated vacancy and financially constrained property owners complicate efforts to attract new occupants.
Leasing activity falls below historical norms
Office leasing totaled 3.2 million square feet through the first three quarters of 2026, down 33% from the 4.7 million square feet recorded during the same period in 2025, according to Newmark.
Third-quarter leasing reached approximately 1 million square feet, compared with 1.2 million square feet in the second quarter and 1.6 million square feet in the third quarter of last year.
The slowdown follows a relatively quiet 2025. Annual leasing totaled 6.1 million square feet last year, below the market’s 19-year annual average of approximately 6.4 million square feet. Newmark expects 2026 leasing activity to finish below that benchmark as well.
Hybrid work continues to influence tenant decisions. Companies are leasing less space, but they are increasingly negotiating longer-term agreements that include expansion and contraction options, giving them greater flexibility to adjust their footprints as business needs change.
Despite the subdued leasing environment, some significant transactions demonstrate that tenants remain willing to commit to office space.
Accounting firm Faegre Drinker renewed its lease for 175,000 square feet at Wells Fargo Center in downtown Minneapolis. In St. Paul, the Minnesota Department of Natural Resources signed a 10-year lease for nearly 125,000 square feet at 10 River Park Plaza, one of the region’s largest recent office leases.
Other notable transactions included Boyum Barenscheer’s move to a 43,346-square-foot headquarters at Midway Innovation Center II and Innovative Office Solutions’ consolidation into a 23,000-square-foot headquarters and showroom at International Market Square in Minneapolis.
Vacancy remains a downtown challenge
The market’s vacancy picture is improving, but conditions vary considerably by location and property type.
Multitenant office vacancy peaked at 24.7% in 2025 before flattening and edging lower, Newmark reported. Across both multitenant and single-tenant properties, the overall vacancy rate stood at 19.8% in the third quarter.
Suburban submarkets generally have lower and more stable vacancy rates than downtown Minneapolis. Well-located properties with modern amenities and convenient access continue to attract tenants seeking quality office environments.
Downtown Minneapolis faces a more complicated recovery. Newmark attributed some of the elevated vacancy in Class A buildings to owners who lack the capital needed to complete leasing deals. Vacancy in those financially constrained properties exceeds 50%, according to the report.
Excluding those buildings, downtown Minneapolis Class A vacancy falls to 24.5%, suggesting that underlying leasing demand is healthier than the broader figures might indicate.
In St. Paul, the central business district continues to face substantial challenges, with overall multitenant vacancy reaching 38.6% in the third quarter.
Rents rise as landlords invest in amenities
Average gross asking rent across the Twin Cities office market reached $31.11 per square foot in the third quarter, up 4.7% year to date. Newmark said that was the strongest annual growth since at least 2018.
Higher asking rents have not eliminated tenants’ advantages in negotiations. Landlords are offering more generous tenant-improvement allowances, free rent and flexible lease terms to secure occupants, reducing effective occupancy costs.
Property owners are also investing in upgrades to make their buildings more competitive. Suntide Commercial Realty’s renovation of 10 River Park Plaza helped secure the Minnesota Department of Natural Resources’ lease. At LaSalle Plaza in downtown Minneapolis, Hempel Real Estate completed a $20 million renovation that includes a tenant lounge, outdoor deck, sauna, cold plunge, pickleball court and upgraded elevators.
Little new construction on the horizon
The development pipeline remains exceptionally lean. Just 254,000 square feet of multitenant office space was under construction in the third quarter, representing 0.3% of inventory and well below the market’s 2020 peak of more than 800,000 square feet.
The two principal projects are Opus Group’s 118,000-square-foot Arcadia headquarters in Edina and Orion Investments’ 136,000-square-foot Craftsman on France, also in Edina. Both were scheduled for delivery in late 2026.
Meanwhile, the market continues to lose obsolete office space. Since 2020, 79 properties totaling 8.2 million square feet have been demolished or converted to other uses, including multifamily housing and industrial space. Newmark identified another 862,828 square feet as proposed for removal in 2027 and 2028.
