Twin Cities Office on Way Up From Bottom

MINNEAPOLIS-Northmarq said in a new report that the Twin Cities office market, at the end of 2010, saw improvement, mainly in slightly lower vacancy and positive absorption. It’s believed that decision makers will be more active in leasing this year, though demand will not see a significant increase.

The overall office market hovers around 21% vacancy in the area, with the Northwest submarket rated the highest at 30.5% and the West area the lowest at 15.3%. However, compared to the first half 2010’s negative 132,829 square feet of absorption, the second half ended up with a positive 201,760 square feet absorbed, according to Northmarq. The market likely hit bottom in 2010, the company said in its report.

Dan Gleason, SVP in the office division, says there will be an increase in demand and activity, but they will not coincide. “There will be some small growth in demand, as job numbers for Minneapolis are improving and businesses have more confidence. We’re hearing that a number of companies will be hiring this year,” he tells GlobeSt.com.

Activity will also be up, though Gleason points out that this will likely be mostly companies moving around to take advantage of the tenant market. “A firm is looking now to find what they can get better – better amenities, leasing, etc. No landlord wants to lose a tenant during a 20% vacancy rate. This should also cause some downward pressure with rates, as when there’s competition, rates stay low. Landlords can only hold out so long before they have to sign leases,” he says. There will also likely be some large-block leases this year, particularly in the education and health care sectors, Gleason says.

As for development, there is more than 6.7 million square feet in the pipeline across the Twin Cities region – it’s just that none of it will likely be built for years, if at all. “There’s always some possibility for build-to-suit, but in general, we’re not going to see development go up until rates increase,” he says. The average lease rate hovered around $12.64 in 2010.