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MINNEAPOLIS-A flight-to-quality trend seems to have emerged in the Twin Cities market as tenants are seeking opportunities to upgrade their space without dramatically increasing their real estate costs, a recent market study concludes. Class A properties in the Twin Cities are experiencing steady demand while there has been a decline in class B and class C occupancy, resulting in minimal net absorption marketwide, according to a report from Northstar Partners, the Twin Cities affiliate of Cushman & Wakefield.

Since the first quarter of 2003, more than 860,000 sf of class A space has been absorbed. Class B and class C properties experienced 536,000 sf of negative absorption during that time.

The overall vacancy rate for all classes of space is currently 20.6%, including 1.4 million sf of sublease space. The amount of listed sublease space increased 190,000 sf during the second quarter, but it is down 19% from this time last year.

Overall vacancy has remained essentially unchanged over the past year inching up 0.2% from the second quarter of 2004. Central business district vacancy dropped 0.2% to 23.0% during the year while suburban vacancy increased 0.6% to 18.6%.

Average asking rental rates for all classes of space dropped 1.4% during the past year to $21.31 per sf. Suburban class B rents experienced the largest decline during the year, sliding 2.8% to $19.69 per sf. Central Business District class B rents dropped 2.6% to $18.42 per sf. Class A suburban rental rates also fell, declining 1.4% to $25.59 per sf. Class A rents in the Central Business Districts experienced a 2% increase over the year.

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