- Tenants taking the high ground in Minneapolis
- Brooklyn Park scores a bull’s eye with Target announcement
- St. Paul shrugs off State’s shuffle out of multi-tenant space
Solid growth, fueled by a resurgence in demand from larger space users, characterized much of the Twin Cities multi-tenant office market during the second half of 2005—and indeed throughout the entire year. Vacancy declined in all seven Twin Cities submarkets in 2005, resulting in a market-wide vacancy rate of 16.1%/18.2% with sublease space. By contrast, the year-end 2004 vacancy rate was 18.3%/20.7%. The market has now recorded two consecutive years of declining vacancy for the first time since the 1996-97 period.
Second-half absorption totaled positive 485,000 sq. ft. market-wide, pushing total net absorption for the year to 1.47 million square feet. It was the market’s most positive year for absorption since 2000.
Landlords were starting to feel more confident in their ability to raise rental rates during the second half, evidenced by an overall $0.39 increase in the average asking price to $12.05 per square foot and a noticeable decrease in concessions.
Higher Expectations for Space Users in Minneapolis CBD
Things are beginning to look up for Class A property landlords in the Minneapolis CBD—especially if they have space to lease on the upper floors of office towers.
While overall market vacancy still lingers at 18.4% for direct space (21.1% with sublease space), the demand for Class A space helped push the overall office vacancy rate in the Minneapolis Central Business District down another 0.7% in the second half. It marked the first time the CBD has experienced a full year of declining vacancy since 1998, when the rate was 5.7%. Read more
Second Straight Year of Solid Growth in the Southwest
Fueled by rising demand from mid-size and large space users, the Southwest submarket saw its vacancy rate decline 2.3% during the year to 12.1% for direct space (14.2% with sublease space). The submarket added 129,000 sq. ft. of positive absorption during the second half, resulting in 327,000 sq. ft. of growth for the year and the second consecutive year of significant positive absorption. Read more
St. Paul CBD Absorbs State Relocation Activity
The St. Paul CBD finally bottomed out during the second half as it absorbed the first wave of a long-predicted upsurge in vacancies from State of Minnesota multi-tenant office users. Although substantial, the impact of the State’s relocation activities out of approximately 150,000 sq. ft. of multi-tenant space into three new State-owned office buildings was less onerous than anticipated. Read more
Northeast Submarket Gathers Steam
Confidence is returning to the Northeast submarket, where surging second-half demand resulted in 127,000 sq. ft. of positive absorption. The vacancy rate declined 0.7% to 13.4% (13.5% with sublease space), after hovering in the 14% range during the previous 12 months. Read more
West Submarket Gets Set for Robust 2006
The West submarket continued to show positive growth and lower vacancy numbers during the second half, including 30,000 sq. ft. of positive absorption and a 0.4% decline in the vacancy rate to 15.3% (16.8% with sublease space). The submarket posted positive absorption of 103,000 sq. ft. for the year—its highest total since 2000. Class A and B space lead the way, absorbing 46,000 sq. ft. and 57,000 sq. ft., respectively. Vacancy in just seven Class A and B buildings accounted for approximately 50% of the market’s total vacancy at year end. Read more
Brooklyn Center Bounces Back in the Northwest
Led by increased demand in the Brooklyn Center trade area, the Northwest recorded 77,000 sq. ft. of positive second-half absorption. The vacancy rate for direct space was at 11.2% at year end, a 5.7% drop since mid-year and an 8.1% decline since 2004 (including sublease space, the year-end vacancy rate was 14.5%). Maple Grove continued to see new development taking place, including the start of construction on the 55,000-sq.-ft. Bell Tower South property. Read more
Steady Improvement in the South/Airport Submarket
The South/Airport submarket remained a steady performer throughout 2005, with vacancy moving down 0.5% during the second half to 11.8% (14.1% with sublease space). Vacancy among Class A properties is among the lowest in the region at 8.2% for direct space (13.1% with sublease space). Read more
Outlook
Everything points to 2006 being another year of continued growth for the Twin Cities multi-tenant office market, potentially resulting in more than 1 million square feet of positive absorption. That could reduce the overall vacancy rate another 2 percentage points. Rental rates will continue to rise, and concessions will be reduced. The first half of the year could see a particularly strong surge in activity, as there are a number of large space users seeking to lease more space in the market at year end. Competition for the diminishing number of large blocks of available space will thus intensify; larger space users may have to expand their geographic search beyond specific submarkets in order to meet their needs.
Speculative office development activity will become more prominent in 2006. The submarkets to watch include the Southwest, Northwest, Northeast and South/Airport.
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