City leaders are coming to terms with the radical transformations of the COVID pandemic. One gaping question: how much COVID-fueled work-from-home has transformed office jobs, and what that means for the built environment.
It’s hard to overstate the importance of this issue. Office buildings with millions of square feet, expensive freeways and onramps, entire transit systems, and hundreds of square miles of Minnesota parking lots depend on how this plays out.
Outside of corporate boardrooms, nobody knows what’s going to happen. Everyone has a theory about the future of offices, but the answers you receive turn into a political Rorschach test. Downtown Minneapolis is ether doomed or thriving, for example, as is the Twin Cities nascent light-rail system or state’s “MnPASS” lanes.
In the meantime, large employers slowly make decisions, and the world of commercial real estate evolves before our eyes.
Meanwhile in Eagan
One surprising victim might be the Twin Cities suburbs. Take the 64,000-person suburb of Eagan, Minnesota where, earlier this year, two announcements upended the commercial landscape. Two of the city’s largest employers terminated leases at massive office parks, both of which served as local corporate headquarters.
In January, Thomson Reuters, a legal publishing company employing around 5,000 people, announced the abandonment of most of its Eagan campus. Because of hybrid work, it’s selling 65% of the 40-acre office space, reducing in-person capacity while they look for a new permanent home somewhere else in the metro.
Three months later, Blue Cross and Blue Shield of Minnesota announced the sale of most of its Eagan headquarters, a 25-acre site three miles to the west down Yankee Doodle Road. Its spokesperson issued nearly identical pablum — “by shrinking our real estate footprint, we believe the company can generate a more collaborative, productive and enjoyable environment for those times when on-site work takes place” — pointing to a shift that is sweeping through the suburbs.
Because commercial property is taxed at a higher rate than residential, for a city like Eagan, with a $42 million budget, the loss of two large corporate headquarters is a hit to its bottom line. In 2022, the two office parks provided about $3 million in tax dollars to the city, county and school board. (The city of Eagan’s cut of the tax revenue sits at around a third of that total.)
Whatever happens to these two sites, they’ll likely be assessed at much lower values moving forward, likely swaying the rest of the suburban commercial real estate market. This puts pressure on Eagan’s single-family residential property to make up the difference, shifting the low-tax balance that draws people to live second-ring suburbs in the first place.
For their part, Eagan city leaders say these kinds of economic changes are nothing new, and the city is well-positioned to survive.
“We continue to seek economic balance, be resilient, invest in infrastructure, create amazing amenities for all, and be flexible to market and technology needs,” wrote City Administer Dianne Miller, in an email.
She cited the changing loss of previous corporate headquarters in the city, including Lockheed Martin and Northwest Airlines, both of which disappeared due to mergers or outsourcing.
“By employing flexibility and patience we were able to maintain our robust and diverse local economy through adaptable redevelopment at Central Park Commons, Viking Lakes, Cedar Grove, and large private investment into remodels and expansions of existing businesses,” Miller said.
Reduce, reuse, remodel
The economy is always changing, but with COVID, the transformation is larger and faster than usual. Cities with concentrations of office space will have to adapt. For many places, that means residential conversion, a hot topic in city planning departments. The problem is that reusing office buildings for housing is no easy task. A lot depends on both the kind of building and the famous real estate truism about “location.”
This is where big differences emerge among office buildings. As reported recently in the New York Times, some older offices are much easier to convert to residential uses than mid-century spaces with more “open” floor plans. In other words, for a suburban “landscraper,” the window-to-space ratio is worse than a vertically-oriented downtown office tower.
The contrast between locational advantages is even greater. In general, walkable areas with amenities are more attractive, and spread-out suburban parks along freeways have fewer of these connections. In general, this means that older downtown office buildings fare better, while large mid-century offices make for harder conversion projects.
Short-sighted investments in South Minneapolis
As I was working on this article, Wells Fargo, one of the metro’s largest employers, announced yet another office closure and consolidation. It is going to sell offices in South Minneapolis (just north of Lake Street) and St. Louis Park, concentrating workers in buildings in Downtown Minneapolis and Shoreview. It’s a sign of what insiders refer to as a “flight to quality,” businesses abandoning Class B and C office space.
Finance and Commerce magazine called the consolidation a “big win for downtown Minneapolis,” but in Minneapolis’ case, it’s a mixed blessing. It comes at the expense of the city’s large South Minneapolis office complex, which employed over 3,000 people before COVID.
The loss of the jobs are ironic as the state DOT spent millions to add a freeway onramp to the site over a decade ago. Then in 2018, despite community opposition, Wells Fargo built a six-story parking ramp adjacent to its office building, despite multiple transit investments within a half-mile. In retrospect, with a soon-to-be vacant office building, both investments look terrible.
The good news is that, compared to its suburban brethren, reusing the Wells Fargo office seems likely. It’s in a hot spot next to the booming Midtown Greenway, in a part of the city where housing demand has been high. To my eye, it seems ripe for the kind of office-to-residential conversion that Mayor Jacob Frey has called a priority.
Meanwhile, in Eagan, the future of the sprawling office park seems a bit more gray.
“Just as in the past, we are continuing to work with (Thomson Reuters),” Miller, the city administrator, said. “Provid(ing) the appropriate resources for them to find their next home, hopefully, here in Eagan.”