More than 21.2 million square feet of vacant office space. That’s the big problem facing the Minneapolis-St. Paul office market, according to a new report from Colliers.
According to Colliers’ first quarter Minneapolis-St. Paul office market report, direct vacancy rates for the Twin Cities-area office sector rose 20 basis points in the first quarter of this year.
That 21.2 million square feet of empty office space is up 12.2% on a year-over-year basis. As Colliers reports, office space continues to hit the Minneapolis-St. Paul market faster than it is being absorbed. And this looks like a problem that isn’t going to ease anytime soon.
Many employees continue to work from home. This means that a growing number of companies no longer need as much office space. These employers might be moving to a higher quality of office space but are taking up fewer square feet as they do so.
Colliers reported that Class-B office space has contributed the most to the rising vacancy rates in the Twin Cities market. The vacancy rate for Class-B space rose 6.38% from the fourth quarter of last year to the first of this.
During the same period, the vacancy rate for Class-A office space fell 27 basis points. The vacancy rate for Class-C space fell 130 basis points.
The overall office vacancy rate hit about 13% in the Minneapolis-St. Paul market during the first quarter of this year.
Not all submarkets, of course, see the same vacancy rates.
Colliers reported that the highest office vacancy rates during the first quarter were in the Minneapolis CBD, Interstate-394 corridor, Interstate-494 corridor and St. Paul CBD.
Lower vacancy rates were recorded in the Northwest, Midway and suburban St. Paul submarkets.
Finding office space can be challenging for tenants depending on where they are looking, Colliers reported. Tenants looking for space in the suburban St. Paul market, for example, will find fewer availabilities and a less competitive sublease market. Availabilities in the Northwest submarket are almost all in the Class-B space, while most availabilities in the Midway submarket are Class-A.
Colliers reported that the I-394 and I-494 corridors are seeing strong leasing activity and offer the widest range of available space by class.
The immediate future of the Minneapolis-St. Paul office sector looks to be challenging, too. Colliers reported that the Twin Cities office market posted more than 500,000 square feet of negative absorption in the first quarter of this year, a trend that is likely to continue as large users downsize their office real estate.
Voya, Calabrio and WeWork have left about 100,000 square feet of office space each in their buildings.
Again, not all submarkets are created equal. Colliers said that the Minneapolis CBD still accounts for a larger share of the overall market’s negative absorption. According to Colliers, the Minneapolis CBD posted almost 300,000 square feet of negative absorption alone during the first quarter.
The I-494 corridor and outlying submarkets both saw overall positive absorption during the first quarter. Tenants are occupying Class-A space in the I-494 and I-394 corridors faster than in any other submarket.
Sublease activity continues to rise, too, across the local office market. But the Minneapolis CBD reported the most square feet for sublease during the first quarter, 1.5 million, Colliers said.
