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MINNEAPOLIS-The Twin Cities office market is “off to a great start” this year, as vacancy rates have declined and leasing rates are starting to rise a bit, according to market reports from two commercial real estate firms.

The overall vacancy rate, which declined for the fourth straight quarter, fell to 16.27% from 17.08% in first quarter, according to the Twin-Cities office of CB Richard Ellis. Class B buildings saw the largest drop in vacancy, falling to 12.65% from 13.41% within the same period. Both Minneapolis and St. Paul “had healthy activity levels,” with downtown Minneapolis vacancy falling to 18.81% from 19.45% and downtown St. Paul’s vacancy falling to 18.88% from 22.24%.

“One of the most surprising figures is the amount of positive absorption that occurred in St. Paul this quarter,” says Matt Boehlke, a research analyst with Grubb & Ellis/Northco Real Estate Services in Minneapolis, who also prepared a Q2 report that showing downtown St. Paul absorbing some 172,788 sf of office space. That includes 119,517 sf of new leases at the First National Bank Building, led by the State of Minnesota’s Department of Employment and Economic Development’s 100,000-sf lease there. “This is a significant fact as many people have been wondering when, if ever, this submarket would finally begin to recover.”

Multitenant office construction, however, has yet to get off the ground so far this year, according to CB Richard Ellis. Office condos and renovations have been slated or completed, but no new major office projects are scheduled for completion this year. The average asking net lease rate increased a modest 5 cents per sf to $10.38 per sf from the first quarter.

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