HEARTLAND SNAPSHOT, JUNE 2010

Minneapolis Office Market

Office development in the Minneapolis market is virtually at a standstill. Since the economy’s downturn, many projects have been shelved and developers today are striving to locate aggressively priced, dispossessed buildings that can be repositioned and brought back to life for the next real estate cycle.

The exceptions are highly visible build-to-suit projects. In September, Acosta, a sales and marketing company, plans to move into a new 65,000-square-foot building in the southwest suburb of Eden Prairie. Additionally, the law firm Hellmuth & Johnson is building 44,000 square feet of office space, topping three levels of covered parking at the intersection of Interstate 494 and Highway 169, also in Eden Prairie.

Shadow space is an underlying issue affecting development in the Twin Cities. Until companies can absorb space they already lease but currently maintain as vacant, the development cycle will remain flat.

Leasing activity is also quiet. Those businesses that are relocating are typically consolidating or otherwise downsizing. However, the U.S. General Services Administration is in the market for nearly a 500,000 square feet of office space. Half of that is being spurred by a short-term need to relocate workers displaced by a $115 million federal stimulus funded renovation of the Bishop Henry Whipple Federal Building at Fort Snelling in St. Paul. The remaining 230,000 square feet is for a 10-year lease, which indicates an expansion of the government’s overall office space needs.

U.S. Bank represents the sole large tenant that recently closed on a lease of 325,000 square feet at Meridian Crossing in Richfield.

With one of every five feet of office space in the market listed as vacant, tenants are still able to drive negotiations. The average net range of Class A office space has widened from a traditional $18 to $20 per square foot per year to around $15 to $20. Landlords are using their creativity to attract and retain tenants. Fortunately for the Twin Cities, our broad base of industries and abundance of Fortune 500 companies has allowed our region to generally fair better than some other U.S. markets.

— John McCarthy is a senior vice president in office brokerage division of NorthMarq Capital’s Minneapolis office.

©2010 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.