The numbers still show an office market struggling with the impact of COVID-19. But those numbers don’t tell the whole story. According to the latest research from Avison Young, reopening efforts and increasing vaccination rates have the Minneapolis-St. Paul office market ready for the start of a recovery in the second half of the year.
According to Avison Young’s second quarter office report, the unemployment rate in the Minneapolis-St. Paul market has dropped from a high of 11.8 percent to 4.1 percent. That’s a good sign for the office market: As people return to work, companies will eventually begin filling office space again, both in the urban centers of the Twin Cities and across its suburbs.
And while a dipping unemployment rate is good news, so is a rising rate of vaccinations. Avison Young said that vaccination rates across the Minneapolis-St. Paul area continue to outpace total U.S. numbers. So far, 54.5 percent of adults here have received a COVID-19 vaccine.
At the same time, the state of Minnesota recently announced a new recovery budget designed to further stimulate the local economy. The hope is that this combined with the rising vaccination numbers and dropping unemployment figures result in an increase in the number of people returning to their offices and a resulting rise in demand for office space.
The raw numbers in Avison Young’s report show that the office market in the Twin Cities still has a ways to go before it enters recovery mode. Avison Young reported that office leasing activity has largely paused, decreasing by 45 percent when compared with long-term historical averages.
At the same time, the office vacancy rate for the Twin Cities market stood at 10.2 percent at the end of the second quarter of this year. That’s up 190 basis points from the sector’s pre-pandemic vacancy rate of 8.3 percent.
The market’s office sector has also seen negative 1.38 million square feet of net absorption from 2020 through the first quarter of 2021. This amount of negative net absorption has significantly surpassed the lows of the global financial crisis in 2008 and 2009.
Not surprisingly, the amount of office sales has also dipped significantly since the start of the COVID-19 pandemic. As Avison Young says, office sales activity has temporarily paused. The Minneapolis-St. Paul office dollar volume of sales hit $1.3 billion from the start of 2020 to this point of 2021.
That’s a significant drop from usual sales activity, with Avison Young reported that the dollar volume of office sales in the Twin Cities market has decreased by an annualized rate of 29 percent compared with the prior five-year average dollar volume.
Again, these numbers sound ominous. But the good news is that COVID-19 cases continue to fall and a growing number of people are receiving their vaccinations. If that trend holds, there is hope for at least the early stages of an office market recovery in the Twin Cities during the second half of 2021.