Downtown Minneapolis Office Market

Downtown - North Loop - Mill District - Elliot Park - Loring Park
min-chi-cbus
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Re: Downtown Office Market

Postby min-chi-cbus » December 21st, 2013, 5:19 pm

mplsjaromir wrote:I think it's safe to say there will not be a major office tower built anytime soon. Not that anyone was clamoring to do so anyway.
This move does not affect that market much at all, since the market for new development is in Class A buildings, and the buildings Wells is moving from are Class B and C buildings. The market for B and C space will probably relax some, yes, but the A space will remain as tight as ever, and if anything will become a hotter commodity. Prices for new construction make the average cost/SF higher (rent or own). ALso, buildings within downtown have been selling for higher prices than ever and rates have been increasing lately. Coupled with tightening supply, this is the formula developers seem to look for when considering speculating on new office space.

Besides, our good friend RetiredBanker is telling us otherwise in regards to new major projects in the pipeline.

mattaudio
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Re: Downtown Office Market

Postby mattaudio » December 21st, 2013, 5:48 pm

I'm wondering if part of the Northstar block or Baker block would ever be a candidate for redevelopment for a Class A tower.

I hope the classic buildings on each block stay. I hope the awful Northstar parking ramp that splits the street and sidewalk goes.

TroyGBiv
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Re: Downtown Office Market

Postby TroyGBiv » December 21st, 2013, 6:09 pm

The Wells Fargo move opens up a lot of Class B space which may slow down a new development because of the available space, but it can also shake up space and lead to new Class A space. Class B works well for smaller companies and "lower level" office needs. The rule is the market always builds and is driven by Class A space - eventually as Class B ages it becomes so undervalued that the market will demand re-use and will lead to demo and new construction. That is a really prime location… My guess is that when the economy gets stronger parts of that block will come down.

Didier
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Re: Downtown Office Market

Postby Didier » December 21st, 2013, 8:36 pm

I didn't mean to say Viktor's point was unfounded. I was just saying that every new building affects existing supply, and focusing on that issue feels negative for the sake of being negative. We are a growing city, and we are capable of building new buildings without demand going to hell and ruining everything.

contrast
Nicollet Mall
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Re: Downtown Office Market

Postby contrast » December 22nd, 2013, 7:44 am

The fact that Wells Fargo intends to own their new space instead of a long term lease demonstrates that at least the WF team believes that the MSP market will remain very strong and rents will be increasing, and Minneapolis in particular, or they would have chosen to do a long term lease. It appears to me that WF believes what ever space they are vacating will be absorbed quickly, the market will continue to grow, and it is a great market to own huge blocks of space- ie the market will continue to appreciate in value. Someone will find a great reuse or redevelopment for what ever space is vacated.

As others stated, I too assume many of the employees will be coming out of the Baker and the Northstar centers but of course am hopeful that their local presence grows overall.

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Mdcastle
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Re: Downtown Office Market

Postby Mdcastle » December 22nd, 2013, 2:14 pm

I guess I'm still not clear why Wells Fargo needs so much space- their main tower is absolutely huge. Did they outgrow it already, or did they not need all of it initially and sublease it out and they can't cancel the subleases so they have to go somewhere else?

Tcmetro
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Re: Downtown Office Market

Postby Tcmetro » December 22nd, 2013, 7:56 pm

From what I understand the new towers will house more of the back office staff that are currently located throughout the metro.

mplsjaromir
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Re: Downtown Office Market

Postby mplsjaromir » December 23rd, 2013, 8:46 am

I still see over 5 million sq ft of office space downtown vacant. Well over 1 million of it Class A. Maybe I am not taking into account developers egos enough, but I do not see why anyone would build. There are currently lots of contiguous spaces available in Class A buildings. Who would the tenant be of a new large office building? Why was the city so ready to give Ryan and Wells Fargo whatever they wanted if there are projects in the pipeline?

I look at it like this. The Ryan/Wells Fargo project is the first major addition to office space in downtown since 2000. The city really pushed the limit to what could be deemed acceptable in a first world democracy to get the stadium funded. In order to try and save face they gave a sweetheart deal to Wells so that those who voted for the project have something to point at when questioned about their stadium vote.

With all due respect to the two RTs (Rybak and RetiredBanker) that does not look like a city that is on the cusp of major office construction boom.

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Avian
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Re: Downtown Office Market

Postby Avian » December 23rd, 2013, 9:29 am

mplsjaromir wrote:...With all due respect to the two RTs (Rybak and RetiredBanker) that does not look like a city that is on the cusp of major office construction boom.
To be fair, three of the planned tall projects are not office towers. One is all residential, one is residential & mid-range hotel, the third is a hotel.

The data is a few months old, but the only major contiguous Class A space is in the 5th Street Towers and that is less than 200,000 SF. Capella has about 230,00 SF available but it is not contiguous. And if the Strib moves there, contiguous space will be rare in downtown.

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mattaudio
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Re: Downtown Office Market

Postby mattaudio » December 23rd, 2013, 9:53 am

Hopefully the tide will turn and we'll see one or two large companies wishing to return downtown. That would not only soak up some space but would set a precedence. We need our Motorola/Merchandise Mart moment. Any contenders who might consider it?

nordeast homer
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Re: Downtown Office Market

Postby nordeast homer » December 23rd, 2013, 10:07 am

Thanks Avian, that model is really helpful to see how these spaces are spread out. That really bodes well for development if any leases for larger tennants come up in the next 5 years or so.

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Mdcastle
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Re: Downtown Office Market

Postby Mdcastle » December 24th, 2013, 7:44 am

I guess that explains why Wells Fargo can't just move into their own building.

Another thing I thought of- maybe in a year or two the Best Buy campus will be available?

go4guy
Foshay Tower
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Re: Downtown Office Market

Postby go4guy » December 24th, 2013, 8:12 am

Plus, I am not sure it would be a wise move for Wells Fargo to move operations into high Class A space in their namesake tower that only need class B or C space. Makes more sense to consolidate it into this campus.

writruth
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Re: Downtown Office Market

Postby writruth » December 25th, 2013, 7:03 pm

Would love to see United Health invest in a modern, contemporary tower downtown. The company has the earnings power and will continue to have into the foreseeable future. Imagine a soaring 70-story flagship tower rising from the vacant plot of land on Nicollet across the street from The Library - a mere two blocks from The LRT! Seems like a no-brainer.

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Anondson
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Re: Downtown Office Market

Postby Anondson » December 25th, 2013, 7:51 pm

Of course United Health is investing in office towers next to what might be described as their own private LRT station. It has been said their execs are pretty pleased to have offices out in the suburbs near their Lake Minnetonka homes.

mattaudio
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Re: Downtown Office Market

Postby mattaudio » December 25th, 2013, 10:05 pm

Anondson wrote:Of course United Health is investing in office towers next to what might be described as their own private LRT station.
Indeed. It seems our first and second lines served the airport/MOA and St. Paul. But the green line extension can be the UHG line and the blue line extension can be the Target line.

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Nathan
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Re: Downtown Office Market

Postby Nathan » December 26th, 2013, 12:41 pm

I feel like we'd see General Mills make a move before United Health Group? I mean UHG just built new buildings. Plus Gen Mills has a ton of land in NE, It'd be cool to see them build a campus over there and develop the skyline across the river a little bit.

lordmoke
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Re: Downtown Office Market

Postby lordmoke » January 10th, 2014, 10:39 am

Dorsey is off the market, now staying put through 2031:
http://www.bizjournals.com/twincities/b ... -deal.html

twincitizen
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Re: Downtown Office Market

Postby twincitizen » January 10th, 2014, 3:03 pm

http://finance-commerce.com/2014/01/cra ... t-ceiling/ (locked)

This article made me (even more) pessimistic about the potential for any new large office buildings in the near term. It says that a few premium spaces are reaching for the $20 rent threshold, mostly due to inflated prices paid for buildings that changed hands recently. There is still a bunch of Class A space available in less-prime locations, call it A- space I guess. The vacancy rate for Class B downtown is well over 20% and Class A still over 10%. Demand for new space downtown was described as "tepid".

Opinion: It's hard to look at these numbers and reports and honestly think that something large is going to be proposed in the next year or so. Will Minneapolis get another office skyscaper to rival the Big 3 eventually? Absolutely, I think it will. We just won't be hearing about it for several years. I know we keep hearing from our industry insiders that big things are right around the corner. I wouldn't be surprised to see continued apartment (or condo) development downtown, even some taller stuff, possibly hotel/residential mixed use. I just can't see a large office project coming to fruition within 5 years time. If the economy remains strong, I could see a proposal or two coming forward in 2-3 years, but no large office tower will be announced before then.

EDIT: Just re-read Avian's post above, stating that none of the 3 projects in early development are office.

MNdible
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Re: Downtown Office Market

Postby MNdible » January 10th, 2014, 6:05 pm

The thing is, 10% for office space is a world different than 10% for apartment vacancies. I think you're confusing the two.

An office building will almost never be 100% rented, because you're not dealing with discrete units of space. If buildings only rented by the floor, and if every user wanted a full floor, you might get to 100%, but users want a particular amount of square footage in a particular price point in a particular configuration. If you're a user that needs 80,000 sf of space, it doesn't matter that there's 400,000 sf available if it's all broken up into non-contiguous 20,000 sf pieces.

And if you're looking for class A office space, it doesn't matter a bit how much class B or class C office space is available.

I'm not predicting that somebody is ready to build a spec office building, but I also think that we're getting very close to the point that somebody will need to.


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