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.

In the 12 months through June, the Twin Cities markethas absorbed 2.3 million sf of space, hesaid. Through June of next year, he thinks the marketwill soak up 3.2 million sf.”This high absorption includes space that is leasedbut not occupied, but even discounting that by500,000 sf, that’s a lot of space,” Perkins says.

The downtowns will see the biggest rise in vacancyrates. Downtown Minneapolis will hit nearly 10% and Downtown St. Paul may go over 12%,Perkins predicts. Despite a host of huge projects comingon line in Downtown Minneapolis over the next year ortwo, demand for new space will stay strong, he says.

St. Paul, however, has a huge amount of space up forsublease and there is uncertainty about the plans ofthe state of Minnesota, Downtown’s largest tenant,which is taking a look at erecting its own buildings.

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