Good activity, but still plenty of hurdles. That’s how JLL describes the Minneapolis-St. Paul office market in the second quarter of 2022.
According to JLL’s second quarter Twin Cities office report, the Minneapolis-St. Paul market saw 793,988 square feet of office lease transactions during the last three months. The Minneapolis CBD saw the most activity during the second quarter, notching 324,679 square feet of office leases.
Some of the bigger office lease deals in the quarter included Taft Stettinus & Hollister signing a 15,951-square-foot expansion, bringing the law firm’s total footprint at the IDS Center to 109,414 square feet. Parametic Portfolio Associates expanded at Centennial Lakes with a 52,898-square-foot lease, while Canteen One closed a 43,672-square-foot as it moved from the suburbs to the North Loop.
And in other good news, Fox Rothschild began its move to City Center, becoming the first tenant to occupay space in the Target sublease.
That’s solid activity. But it doesn’t mean that the Minneapolis-St. Paul office market doesn’t still face challenges. According to JLL’s report, the office vacancy rate in the Twin Cities market jumped to 18.1%, up from 17.3% in the first quarter of the year. As in most office markets, though, there is a flight to quality here. JLL says that the Class-A vacancy rate remained lower at 16.3%, while Class-B vacancy rose to 19.9%.
The Minneapolis CBD had the highest vacancy rate at 22.4%, driven largely by the Target sublease. The West submarket had a vacancy rate of 21.3%, while the Southwest submarket’s rate was significantly lower at 17.4%.
This rise in vacancy was driven by negative absorption of 733,975 square feet in the second quarter.
The second quarter did see the 1.7.-million-square-foot sale of the Normandale Lake Office Park to Opal Holdings. But investment sale activity overall remained slow, a trend that has continued since the beginning of the COVID-19 pandemic. JLL said that rising interest rates have also had an impact on pricing, forcing lenders and buyers to reconsider office deals.