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MSP office vacancy up 12% from last year

Office vacancy rates continue to rise as new space comes to market faster than it’s being filled, according to Colliers.
Downtown Minneapolis skyline
MinnPost photo by Peter Callaghan

With over 21.2 million square feet of vacant office space in the Twin Cities metro, office vacancy rates in the area are up 12.2% year over year, according to a recent report by Toronto-based Colliers International.

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While the Minneapolis-St. Paul labor markets have shown strong resilience to layoffs, office occupancy remains low, according to a Q1 market report by Colliers, which has offices in both Minneapolis and St. Louis Park.

The Minneapolis and St. Paul office market has continued to show a “negative absorption” rate in the first quarter of this year. This simply means the demand for office space is lower than the supply available. The report points to properties like Voya, Calabrio, and WeWork, which have all vacated or downsized leased spaces, leaving around 100,000 square feet each in their buildings. The Twin Cities is one of only three major markets that continue to post negative absorption rates every quarter since the pandemic started, the other two being Baltimore and Chicago.

The Minneapolis central business district (CBD) alone saw a negative absorption of 300,000 square feet, the largest negative absorption in the region. In total, the Twin Cities metro reported more than 500,000 square feet of negative absorption in the first quarter. However, the I-494 Corridor and outlying submarkets both saw overall positive absorption, with tenants filling Class A space in the I-494 and I-394 Corridors faster than any other submarket, according to the report.

All of this comes as the Minneapolis-St. Paul real estate market also looks toward the adaptive reuse of office buildings into industrial and multi-family buildings, the report states. For example, this quarter, the former Ecolab building in Downtown St. Paul was purchased for a multi-family conversion. Colliers concludes in its report that this proves the economics of these conversions are viable on their own in some cases.

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However, without government incentives, the major determining factors for such conversions are the amount of leasable square footage on an individual floor of a building, as well as location and price, according to Colliers.

“Government incentives can themselves become strong components to kick-start adaptive reuse and make possible otherwise impossible conversions,” the report states. “As more obsolete office buildings are considered for adaptive reuse, potential long-term ramifications will emerge as to how housing will reshape the neighborhood and shift the city’s property tax basis.”