by Dan Rafter
The multifamily and industrial markets in Minneapolis/St. Paul are thriving. Just look at the number of construction cranes and spec warehouses being built in the Twin Cities area today.
But the office market in the Twin Cities is actually enjoying a quiet resurgence, too. And that’s good news for anyone hoping for busy times for commercial real estate in 2015 and beyond.
DTZ recently released its first quarter office report for the Minneapolis/St. Paul area. And the company found plenty of good news. Most important, the metropolitan area enjoyed nearly 300,000 square feet of net absorption in the first quarter of 2015.
Tyler Allen, research analyst in DTZ’s Minneapolis office, said that that five of the six office submarkets that DTZ studies showed positive absorption in the first quarter. All office types, too, enjoyed positive net absorption during the quarter, Allen said.
Of course, certain submarkets are performing better than others.
“The Minneapolis Central Business District and hotspots in the Southwest and West/Northwest markets continue to significantly outperform the metro averages,” Allen said. “Demand for office space in mixed-use neighborhoods has continued to boost their micro-markets.”
The overall vacancy rate for the Twin Cities office market fell to 14.4 perent in the first quarter, according to DTZ. That is a drop of 2.5 percent in vacant space since the first quarter of last year. This also represents the largest 12-month change in office vacancies in more than a decade.
The West/Northwest and Minneapolis CBD submarkets remain the strongest when it comes to office activity. DTZ reported that of the 290,000 square feet absorbed in the first quarter, more than 85 percent of it took place in these two key submarkets.
Class-A properties saw the lowest vacancy rate by building type. This rate stood at 10.8 percent in the first quarter of the year. The Minneapolis CBD had the lowest office vacancy rate of any submarket, 12.3 percent.
Behind the good numbers
There are several reasons for the strong performance of the office market in the early stages of the year. The overall unemployment rate in the state of Minnesota was a low 3.7 percent. That’s much better than the overall U.S. unemployment rate of 5.5 percent.
At the end of 2014, there were 89,900 job openings in the state, 47 percent higher than a year earlier. It’s also the highest number of job openings since 2001. According to DTZ’s report, there are now 1.1 unemployed people for every active job opening in the state. That’s down from 2.1 people per opening last year.
Like other markets in the Midwest, the Twin Cities is seeing renewed interest in its urban core, DTZ said. That’s evident in two companies making moves from the Twin Cities’ suburbs to the CBD.
Varde Partners plans to relocate to 36,000 square feet in the AT&T Building downtown from the Normandale Lakes office park in the Southwest submarket. Qumu will move from the West/Northwest submarket to the CBD in a 17,000-square-foot deal.
There was one particularly large office sale in the first quarter in the TWin Cities market: The 1.06-million-square-foot Fifth Street Towers in Minneapolis’s CBD sold for $154 million.