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MINNEAPOLIS-Office vacancy rates in the Twin Cities edged upward during the first half of 2001, reflecting a national economic slowdown, according to a new report fromUnited Properties. The Bloomington, MN-based commercial real estate services firm expects the metro area’s overall office vacancy rate will have a chance to recover during the next year or so now that new development has slowed to a crawl–with the exception of Downtown Minneapolis, which will have more than one million sf of new space opening this fall.

In Minneapolis, overall vacancy rates remained unchanged at 9.2%. Class A space vacancies are even lower at 8%. But vacancy rates increase to 11% if sublease space is added back. Much of that modest increase is attributable to a 175,000-sf block of space at US Bank Place being offered by American Express Financial Advisors. The company, which recently announced significant layoffs, may return substantially more sublease space to the market in the future, up to a total of 360,000 sf. Its new building is designed to accommodate future expansion, United notes.

Rental rates in the Downtown MInneapolis market showed a slight overall decline, with the most pressure on class C properties.

“Owners were also more aggressive in offering enhanced concessions to attract and retain tenants in what is becoming a softer market,” the report says.

Positive absorption of 108,379 sf was slightly behind the 2000 pace. Strength in the class A market–positive absorption of 294,272 sf–was offset by negative numbers in the class B (81,942 sf) and class C (103,951 sf) markets.

American Express’ and Target’s new positions as owners of their respective buildings will alter the dynamics of the Downtown commercial real estate market. After years of rapid growth, these companies are substantial tenants in a number of Downtown multi-tenantproperties, including the Baker Building, NorthStar Center, Multifoods Tower and IDS Center. Also scheduled to come online later this year are the 630,000-sf 50 S. Sixth St. building and the 449,000-sf 900 Nicollet building. The 50 S. Sixth St. building is 75% pre-leased, having attracted such major tenants as the Dorsey Whitney law firm (vacating 240,000 sf of space, with 100,000 sf already backfilled, at Pillsbury Center) and the FallonMcElligott advertising agency (vacating 100,000 sf of space at the AT&T Tower, most of which is already backfilled).

The 900 Nicollet Building, which also includes a 150,000-sf Target retail store, is 100% pre-leased and anchored by Retek.

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