JLL Report: Good and bad news for a Minneapolis office market facing uncertainty

For the first time in five quarters, the Minneapolis office market in the third quarter of this year posted positive absorption numbers. That doesn’t mean, however, that the office market here still isn’t facing challenges.

The third-quarter Minneapolis office report released in October by JLL shows that the office sector in that city has been resilient throughout the COVID-19 pandemic. But it also shows that the city and its surrounding suburbs have not been immune to the challenges the entire country has faced over the past 20 months.

The COVID-19 pandemic has hit some sectors of commercial real estate harder than others. The office sector, however, faces a particularly uncertain future. Many companies scuttled plans to get workers back to the office in September due to the rise of the Delta variant.

Now, it’s unclear when or how many employees will return to office buildings in downtown Minneapolis and its suburbs full-time or part-time. Many companies are considering a hybrid work arrangement in which employees work part of the time in the office and the rest at home. It remains to be seen how this affects the office market throughout the Minneapolis area.

According to the JLL report, two significant new occupants who have moved into the Minneapolis CBD helped push the market to positive uptake in the third quarter.

Deluxe Corporation has moved from the suburbs to 801 Marquette, removing 95,000 square feet from the market. And Life Time Work has moved into Thirty, the converted YMCA building on the west end of Minneapolis’ central business district, filling 53,000 square feet. These two movements were the main source of the positive absorption of offices during the third quarter.

In another big move, three of the four buildings at the Metropoint office campus in St. Louis Park, Minnesota, were sold in July for $ 63.5 million to ABS Management. Besides Thrivent’s $ 130 million sale and leaseback of its headquarters in February, the sale of Metropoint was the largest office business in 2021 to date.

Overall, the total vacancy rate for the Minneapolis office market was 18% for the third quarter, according to JLL. At the same time, 531,419 square feet of new office space was under construction.

The average direct asking rent for offices in this market edged down to $ 28.65 per square foot, while the average asking rent for subletting was $ 25.86 per square foot.

For the year 2021 to date, the net absorption in the Minneapolis office market was negative at 819,134 square feet.

What does the future hold? No one knows for sure, but big office deals are on the horizon. JLL cited Target as an example.

In the first quarter of 2021, Target announced plans to sublet its City Center site in the CBD of Minneapolis. This will make Target the largest sub-lessor in the country when its 890,000 square feet of office space is officially listed, which is expected to occur in the fourth quarter of this year.

The next major office delivery will be RBC Gateway in early 2022. This Minneapolis CBD development anchored to the east end of Nicollet Avenue will also include a Four Seasons hotel and condominiums. This is in addition to the 531,000 square feet of office space. Fortunately, the majority of these offices are already pre-let.

Jose C. Birney