MINNEAPOLIS—This city has become one of the most vibrant real estate markets in the US. And according to JLL’s recently released Spring 2014 Minneapolis Skyline Review, a study of the top downtown office properties, institutional investors took notice in a big way throughout 2013. Six of the city’s major office towers traded hands in the past year, with a total of more than 3.4-million-square-feet, a pace not seen since before the recession. As a result, “owners are establishing higher asking rates in order to meet aggressive pro-forma expectations.”
The firm now includes 43 cities and areas in its US Skyline Review, with a total of 979 buildings.
The 22 Minneapolis properties include the 1.2-million-square-foot IDS Center and the 486,723-square-foot Retek on the Mall, a 12-story building with 100% occupancy. JLL defines this city’s Skyline as the trophy and class A buildings with more than 250,000-square-feet and ten stories. Furthermore, each must have been built or significantly renovated since 1985, or have a high-profile location, a recognized tenant profile, or have architectural significance.
During 2013, Florida-based Beacon Investment Properties LLC bought the IDS Center for $253 million. At the time, Beacon stated that it was “attracted by the IDS Center’s iconic position, not just in the Twin Cities, but throughout the national property market.” Other major sales include the Oracle Centre, a 20-story building at 900 Second Avenue South, which was sold to a joint venture between Investcorp International and Wildamere Properties, and the 40-story RBC Plaza.
“The increase in asking rates has motivated some tenants to explore less expensive opportunities that are not part of the Skyline set,” the new report notes.
Although the job market in the metro area is quite healthy, absorption within these elite office properties was a bit slow, and the direct vacancy rate was at 11.3%, the JLL researchers add. They attribute this to the now well-observed trend of corporate right-sizing. Still, the humming economy should serve the top office properties well in the long-run. “Trophy assets, although more expensive, will continue to serve high-profile tenants which value real estate as both office space and as an environment for employee recruitment and retention.”