Downtown Minneapolis Office Market

[nordeast homer]

I think the longer developers wait on an office project (if vacancies drop below 10%) the more likely tenants start to look to the suburbs to meet their needs. The Downtown East development will help a little, but probably not much.
I would like to see some new retail try to come back to downtown too.

[Nathan]

And the lag time between proposal and construction on a large project... We might be in the lower teens now, but do we think we'll have demand for it in 4-5 years, I really hope Minneapolis will have grown to need more office space by then...

[min-chi-cbus]

I realize we're not these cities, but Seattle and San Francisco are putting up millions of SF of office space NOW, and often times the coasts are the barometer for the rest of the country when it comes to real estate demand (I'm also aware that both of those cities are red hot tech markets and we are not, and one of our biggest DT employers -- Target -- isn't building anything anytime soon).

[John]

I realize we're not these cities, but Seattle and San Francisco are putting up millions of SF of office space NOW, and often times the coasts are the barometer for the rest of the country when it comes to real estate demand (I'm also aware that both of those cities are red hot tech markets and we are not, and one of our biggest DT employers -- Target -- isn't building anything anytime soon).

I've lived through three office tower booms in Minneapolis since 1978. There seems to be a "trickle down" pattern in office development from NY , Chicago, LA, and then to large regional centers like Seattle and SF, followed by the smaller regional centers like Minneapolis and Denver. I'm assuming this will happen again if the economy continues to grow.

[Avian]

I'd say Minneapolis & Seattle are much more alike. Seattle has about 100,000 more people in its metro than MSP does so they aren't too far apart, whereas MSP has over 800,000 more people than Denver. Denver's last major office tower was built in 1985 so they've seen quite a slump in their office market. I'm impressed that Amazon has committed to downtown Seattle!

[FISHMANPET]

Minneapolis doesn't have Amazon or Microsoft.

[Avian]

Microsoft isn't in downtown Seattle. And Amazon is smaller than Target. Just sayin'

[Silophant]

Yeah, if Target (or UHG, or Medtronic) out of the blue decided to abandon their new suburban campus, we could get what Seattle's getting. #boundlessoptimism

[mattaudio]

Why would they do that when we build new freeways and even light rail to the front door of their rural property?
We should blame ourselves, not these companies. They're benefiting (and Minneapolis has long suffered) from suburban social engineering, but we were complicit with it.

[FISHMANPET]

Seattle has multiple spec super talls in the works in anticipation of Amazon's growth. Microsoft isn't downtown, but there is a lot of Microsoft workers living in the city which could provide some pressure on the office market (converting class B or C into housing perhaps) though i don't know if that's actually a thing that's happening.

[uptown067]

Two relevant articles:
http://www.nytimes.com/2013/08/26/us/as ... gewanted=2

http://www.nytimes.com/2013/01/16/reale ... ted=2&_r=0

Clearly, there's really no much comparison between Seattle and Mpls.

[Gman12]

Not a good sign for people who think we'll get something tall soon.

http://www.bizjournals.com/twincities/b ... ffice.html

[MNdible]

From the article:

Class A space in downtown Minneapolis (with 11.1 percent vacancy rate) is in high demand...

[uptowncarag]

The problem with Amazon is that they don't build anything and they could go bust in a flash.

[John]

From the article:

Class A space in downtown Minneapolis (with 11.1 percent vacancy rate) is in high demand...

And if they build new office space it will be Class A. That demand is what drives new office tower development.

[City slicker]

Yes- 11% is low. I wonder if we can drop below 10% if that might ignite a proposal

[Chauncey87]

I have to say if one is in the market for class A office space. The vacancy rates in class B and C doesn't really come into play. Seeing that the Class A vacancy rate is right around 11 percent. It isn't out of this world to imagine office space being proposed for downtown Minneapolis this coming year. If it comes in a super tall(s) as some posters from here have hinted at or in the form of a corporate campus such as the one already scheduled to brake ground this spring with Wells Fargo.

I really do not understand the pessimism and utter lack of understanding just how complex building anything can really be. We just found out it took well over a year of behind the scenes negotiation to bring us the twin Wells Fargo towers. That was just ONE tenant.

If your looking to build a super tall with one or two anchor tenants to make your tower work locked them in and already started marketing to the "sub" tenants who are going to fill up the rest of the space god forbid one of your main tenants flakes out. Your stuck in a limbo zone with a set timeline to fill that void before the whole thing starts unwinding. A company looking to lease in a proposed super tall is only willing to be in a holding pattern for so long before leasing elsewhere.

So already Minneapolis is gaining another 1+ million sq feet of class A office space. That I would consider already a win and if I read that another office tower is proposed or wanted to start construction in the next year that is icing on the cake.

[ECtransplant]

Is it common for the vacancy rates of class A/B/C to differ significantly? What consequences would we see if they diverged extremely (say class A vacancy 8% and class B over 20%)?

[min-chi-cbus]

Yes- 11% is low. I wonder if we can drop below 10% if that might ignite a proposal

There is nothing magical about 10% other than that it's a generally well-known barometer for developing spec office space. 11% is not that different from 10%, so unless developers stick to a handbook that says "10% = good; 11% = bad", I'd think the speculation has either already begun or the market just isn't quite hot enough yet to strike (even if it WAS at 10%). Either way, like Chauncey87 said, these things don't happen overnight, and a drop to 10% isn't going to spark some radical change that wasn't already in the works.

[Avian]

Some numbers from the Jones Land LaSalle report on 4th quarter contiguous office space in downtown Minneapolis...

There is only one block of contiguous Class A office space available that is over 200,000 SF. (To compare, Be The Match's new office building is 240,000 SF.) There are 6 blocks of space available that are between 100,000 and 200,000 SF, and 4 blocks of space of 50,000-100,00 SF.

Only one block of 200,000+ SF contiguous space is available in Class B buildings. None in the 100,000-200,000 range, and only one in the 50,000-100,000 range.

http://www.us.jll.com/united-states/en- ... 202013.pdf