Office buildings in Minneapolis and St. Paul are feeling awfully empty these days, according to the latest research from Newmark.
In its third quarter Minneapolis-St. Paul Office Market Report, Newmark reported that the region’s office vacancy rate continues to rise, hitting 15.3% in the third quarter. That’s up 30 basis points from the previous quarter.
The Twin Cities office market also recorded negative net absorption of 343,676 square feet during the third quarter.
These numbers aren’t surprising. Office markets across the United States continue to struggle as companies allow more of their workforces to work from home. With this trend showing few signs of slowing, office tenants are increasingly downsizing, needing less square footage for their offices.
This has also led to a flight to quality, one that is clear in the Twin Cities market. Older office space is seeinng especially high vacancy rates today while more companies move to Class-A offices. These tenants can afford this more expensive space because they need less of it.
Consider the performance of Class-A office space in the Twin Cities market. Newmark reports that Class-A asking rates stood at $35.75 a square foot in the third quarter and have increased 220 basis points since the third quarter of 2021. Overall office asking rates saw an increase of 70 basis points during the same time.
This has led to developers targeting outdated office space with the goal of converting them to live, work and play developments.
Despite this rather muted outlook, the Newmark report pointed out several larger office transactions that took place in the Minneapolis-St. Paul market. The Normandale Lake Office Park sold late in the second quarter when New York-based Opal Holdings purchased the 1.7-million-square-foot campus from a MetLife and Allstate Insurance partnership for a price of $365 million, $215 a square foot.
In the northeast submarket, Broadway Ridge was purchased by Singer Capital from Altus for $30 million, $161 a square foot. The 466,900-square-foot Prudential Office Campus in Plymouth, Minnesota, sold for $20.4 million or $43 a square foot. Scannell purchased the property with plans to demolish it and build a mixed-use development on the 75-acre site.
In the CBD, Sherman and Associates purchased the former Wells Fargo Operations Center at 255 2nd Ave. S. This 561,000-square-foot building was purchased for $6.4 million or $13 a square foot. Sherman also plans to demolish and redevelop the 2.4-acre block into mixed-income and market-rate apartments, a hotel and, possibly, offices.
Total office sales volume in the metro area now stands at $846 million year-to-date with $142 million trading in the third quarter. Office investment sales volume remains sluggish when compared to previous years.
