Views Diverge on Outlook for Office Vacancy Rates

MINNEAPOLIS-While office brokers agree that the Twin Citieseconomy is diverse and growing, there are diverging views about what will happen with vacancy rates next year. CB Richard Ellis sees absorption slowing, while Welsh sees continued gains.

Demand for office space is starting to slow in theTwin Cities market and that could mean a rise invacancy rates next year, to 9.7% from 8.6%, according to Jim Freytag, vice president ofCB Richard Ellis, who works in that firm’sBloomington, MN, office. He predicts a 5%increase in the inventory of space, adding 2.9 millionsf of office space to the existing 60 million sf. Healso sees a slight dip in rental rates for both classA and class B space.”I think we will take a breather after a tremendousabsorption over the last few years,” Freytag says.

But while Michael Perkins, a vice president at WelshCos., anticipates even more new space will come on linethan does Freytag, Perkins predicts vacancy rates willdrop next year to 7.5%. He foresees a slightincrease in class A rental rates, and a slightdecrease in class B rates.”Even with new building, demand continues to exceedsupply,” Perkins says.