Minneapolis-St. Paul’s office market closes out a strong decade laying an optimistic foundation for 2020

• Fourth quarter leasing activity shores up vacancy at delivered new construction in the Minneapolis CBD.
• The latest round of St. Paul’s office to multi-housing conversions will remove 435,000 square feet of office inventory.
• The first major West End speculative office project breaks ground in 17 years.

Leasing activity in new construction was a significant contributor to net absorption. Following the RBC Gateway’s groundbreaking in the second quarter, the existing supply of delivered speculative new construction has diminished at a healthy pace. In the North Loop, of the initial roughly 600,000 square feet delivered since T3 (Q4 2016), less than 10% remains available. The same can be said in East Town, where Rally Health will expand its footprint (20,000 sf) alongside former North Loop tenant, Provation Medical (37,000 sf), topping off occupancy at the Millwright Building.

Investors in downtown St. Paul are continuing to take advantage of its rapid population growth and demand for housing within the city’s existing building stock. Additional plans to convert office to multi-housing were made public in the fourth quarter. Cray Plaza (219,000 sf; Bigos Development) and the former Ecolab University Center (216,000 sf; Freedom Development Group) are both undergoing conversion to multi-housing, helping to hold office vacancy steady near 15%. With downtown St. Paul’s decade-long residential growth spurt approaching 10,000 residents, the stage is set for AECOM’s riverfront redevelopment to usher in the new decade.    

The groundbreaking of 10 West End brings the first fully speculative office building over 200,000 square feet in the West since 401 Carlson Parkway was delivered in 2002. The West historically leads active tenant demand; therefore, setting the expectation for a relatively short lease-up period.

Outlook

Despite quarterly swings, significant positive absorption closes out 2019, and signs point to an optimistic continuation in 2020.