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MINNEAPOLIS-The two Downtown office markets are still in the doldrums, both with vacancy rates above 20%, while the suburban office markets are picking up, according to a new market survey from Bloomington, MN-based United Properties. “The Twin Cities office market is on firmer ground today than at any time in the past three years,” says United Properties senior associate Bob Revoir.

Metro-wide average vacancy rates declined slightly to 18.3%, or 20.8% with sublease space. Class A rental rates for the overall Twin Cities office market are at an eight-year low, averaging $13.60 per sf, according to the report.

There was no new office construction in the Twin Cities office market in the first half of 2004, which has not happened in any six-month period since 1996, according to United Properties. The survey projects about 250,000 sf of new construction to come online the second half of the year. This will represent the lowest annual rate of new office construction since 1995 and 1996 when no new office development occurred.

Overall, the market recorded positive absorption of 344,864 sf in the first half, compared to negative absorption of 194,551 sf in the second half of last year. Six of the seven office submarkets reported positive absorption, with the West submarket leading the way at 224,136 sf. Only the South/Airport office submarket reported negative absorption of 46,961 sf.

The recovery seems to be taking root faster in some suburban office submarkets, according to Revoir. Many tenants are also tempering their real estate plans while waiting to see what happens with the six large office buildings, representing 3.6 million sf.

Another 500,000 sf or more of positive absorption is within reach for the overall Twin Cities office market over the next six months, and would result in as much as one million sf of real growth in occupancy for the year, according to United.

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