The latest research on the Minneapolis-St. Paul office sector tells a familiar story: Vacancy rates remain high, demand for new office space has dipped and landlords need to work hard to attract tenants.
Those are the big takeaways from Newmark’s first quarter 2026 Minneapolis-St. Paul office report.
And while many of the numbers in Newmark’s report paint the picture of an office sector that continues to struggle, there are some signs of hope. The Nemark report points to early signs of a stabilizing market and even cites opportunities for investors who are willing to take a longer-term view of the Twin Cities office sector.
Vacancies down … slightly
Overall office vacancy across the Twin Cities dipped to 19.9% in the first quarter, according to Newmark’s report, down from 20.8% at the end of 2025. That’s not a big drop, but any dip in today’s office sector is worth celebrating.
In an additional bit of good news, Newmark reported that office net absorption in the Minneapolis-St. Paul market turned positive, too, reaching nearly 50,000 square feet during the first quarter.
That improvement, though, comes with an asterisk. Much of the vacancy decline is tied not to surging demand but to shrinking inventory. Developers and owners are actively removing obsolete office space through conversions, demolitions and redevelopment projects. Since 2024, more than 3.4 million square feet of office space has been taken out of the Twin Cities office inventory, Newmark reported.
A quiet leasing market
While vacancy and absorption numbers improved, office leasing activity across the Twin Cities market remains subdued, Newmark said.
The big trend in the first quarter here? Tenants continued to right-size their footprints, often renewing leases for smaller spaces or relocating to newer, amenity-rich buildings. This ongoing “flight to quality” is one of the dominant trends shaping the market. Tenants today can spend more money per square foot while leasing a smaller amount of office space, giving more expensive, amenity-rich properties an advantage.
This tend is also helping to create a sharp divide between properties. Newer or recently renovated Class-A buildings in desirable submarkets, such as the North Loop or the West End, are leasing up. Older Class-B buildings, especially those lacking modern amenities, are struggling to compete.
Office landlords working hard
Newmark reported that landlords are responding by holding the line on asking rents while increasing concessions. Average asking rents in the Twin Cities office market have inched higher, but the true cost of occupancy is falling as landlords offer more free rent, higher tenant improvement allowances and flexible lease terms.
That dynamic has firmly tilted the market in favor of tenants.
The challenges faced by landlords are particularly noticeable in the downtown cores of Minneapolis and St. Paul. In downtown Minneapolis, vacancy hovered just above 30% in the first quarter, while St. Paul’s downtown office market posted an even higher vacancy rate of about 37%.
Don’t expect these numbers to fall significantly anytime soon. Newmark projects that vacancy in the Minneapolis central business district could climb past 31% by 2028 as companies continue to shed space.
High-profile moves are contributing to that trend. Target paid nearly $110 million to exit a long-term lease at City Center, removing about 900,000 square feet from the sublease market and returning it as direct vacant space.
At the same time, financial pressures are reshaping ownership. Several downtown properties have traded at steep discounts compared to their pre-pandemic values, while others have entered foreclosure or special servicing. These lower valuations are opening the door for opportunistic investors to acquire assets at reduced prices and reposition them.
A bit of hope?
The Twin Cities do possess some traits that are helping it weather the office sector’s struggles. Newmark points to the region’s diverse economy and highly educated workforce as positives. Newmark also noted that the region’s unemployment rate stood at 3.8% at the end of 2025, below the national average.
But office-using sectors such as information and financial services have lagged in job growth, with many companies still eliminating jobs. Office-using employment has yet to return to pre-pandemic levels here, too, a challenged faced by many markets across the United States.
The office sector remains fundamentally changed, too, after the COVID pandemic. Newmark says that hybrid work schedules are employed by a growing number of companies. Most companies have settled into long-term workplace strategies, bringing more clarity to their real estate decisions. Even so, another wave of downsizing could come soon as leases signed before the pandemic expire over the next few years.
Newmark said that selective expansion is beginning to emerge, particularly among financial firms. Suburban submarkets are also showing relative strength, with lower vacancy rates and demand that is more stable than in the market’s downtown cores.
Then there is the opportunity that comes with a more chaotic market. Newmark said that investors willing to buy discounted assets and invest in upgrades can find plenty of opportunities today in the Twin Cities office sector.
