CBRE’s Freytag and Karkula: Plenty of office activity in the Minneapolis suburbs today

west end

by Dan Rafter

Urban centers are getting all the press today. But the suburban commercial real estate market is soaring, too, today in the Twin Cities area. Minnesota Real Estate Journal recently spoke with Jim Freytag and Brent Karkula, office brokers with the Minneapolis office of CBRE, about the strength of the suburban office market here. Both brokers agreed: The suburban office market isn’t an afterthought today. It’s a first choice for many companies.

Minnesota Real Estate Journal: We all hear a lot about what office users want when it comes to urban office properties. But what about in the suburbs? What amenities do companies want when they are looking for office space in one of the suburbs?
Jim Freytag: We work in the suburbs and some in down Minneapolis and the urban core. We have a pretty good perspective on a whole lot of things. The tenants today are looking for amenities in the suburbs today. It’s often about walkability. People want to be near a lot of service amenities. They want their employees to have access to food options over their lunch hours. They want their employees to have access to workout amenities. They want their office buildings to be located near apartments or near hotels for when employees have visitors coming to town. They want entertainment options for after work, restaurants and bars, that type of thing.

The most notable area in the suburbs that fits that is the West End area in St. Louis Park. You have the Shops at West End, a number of watering holes, a movie theater. There have also been a number of apartments built in that area. There’s a grocery store right there. A lot of office users say they want to be right there.

MREJ: What else are office users looking for in the suburbs?
Freytag: Many want to be close to some green space. We are marketing one of the new Ryan projects in the Downtown East development, the Millwright building. That building is going to be new construction designed to look like a 100-year-old vintage warehouse building. It will have brown brick and will be pedestrian-friendly. There will be a fourth-floor terrace for green space and best-in-class bike storage on the ground floor of the building. If people want to ride their bikes to work, they can ride them right into the building. There are going to be lockers and showers, too, so you can clean up after yourself.
MREJ: So owners are spending more on filling their buildings with amenities?
Brent Karkula: Back in the day, building owners might renovate some corridors with new carpeting and wall coverings and wait for market to come to them. They would fill their buildings through increased demand. Now landlords are taking a hard look at the amenity packages and condition of buildings. They are not just spending $100,000 to do this, they are spending millions to reposition these buildings. It is effective. They buy them for a certain price and sink money into the common areas. The rental rate you can offer is still significantly lower than new construction.
Freytag: The bad news is that rental rates are going up. The good news is that owners want to provide a work environment so that tenants are feeling better about paying that higher rent. The tenants feel that they are getting some bang for the buck. We as a group, I can think of five different buildings that we have traded recently. The owners are looking at what do we need to do to spiff up the image of these buildings. They want to make them as modern as possible. There is not a lot of new construction happening in the suburbs. Market fundamentals will help push up the occupancy and rental rates because of that. When you couple that with these owners looking to make investments in these assets, you are looking at some good long-term value in the suburbs. Tenants will see some nice office product come out of these improvements.

MREJ: It sounds, then, that there is still a solid demand in the Twin Cities market for suburban office products.
Freytag: Not everybody wants to or needs to be downtown. Not every company needs to have a location downtown. There is a movement to create a new urban suburban type of development. Suburbs are trying to create their own urban feels. It is possible to create suburban developments that are walkable and that are located near shops and restaurants and other amenities. That is what people are looking for today. Not everyone wants their offices to be downtown. Not everyone has a workforce that is under 35 that wants to walk to work, go to the bars and the head back to work until 10 p.m.
Karkula: If you are someone like an accounting company, you don’t need to be in downtown. You don’t want to deal with the headaches that come with being downtown. Healthcare is another industry that is very loyal to the suburbs. United Healthcare has many buildings in Minnetonka and Eden Prairie. Prime Therapeutics stays loyal to the suburbs. Where is your workforce? Where are your labor pools? You then base your decision on that.

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