Downtown Minneapolis Leads Q4 Office Leasing Activity
The pandemic turned downtown Minneapolis into a ghost town. The majority of office workers who once filled the streets and skyways started working from home. Many large companies are not expected to call workers back until later this year, at the earliest. There’s been a lot of handwringing about the fate of the downtown Minneapolis: will it bounce back or turn into a permanent Zombie Land?
But where did office tenants lease the most space in the fourth quarter of 2020? Downtown Minneapolis.
A new market report from Dallas-based CBRE Group Inc. shows that downtown Minneapolis accounted for 58 percent of all metro leasing activity in the last quarter of 2020.
The biggest deal of the quarter was law firm Fredrikson & Byron leasing 178,000 square feet in 60 South Sixth, the former RBC Plaza.
“The activity is really starting to spike up, even in the second half of January,” said Reed Christianson, a principal with the Minneapolis office of Houston-based Transwestern.
Christianson said that just over the last two weeks, many tenants who had been sitting on the sidelines and put decisions on hold in 2020 are starting to get serious about deciding what they need for office space.
“Decision-making is really starting to happen again,” said Christianson.
Transwestern represented Fredrikson & Byron in its search for space. Christianson is upbeat about the prospects for downtown leasing in 2021.
“I think people are seeing the light at the end of the tunnel,” said Christianson. “I think it’s turning the corner and I think we’ll be surprised at what happens this year.”
Even in a climate of economic uncertainty, the overall downtown market saw positive absorption of 126,703 square feet for 2020, according to CBRE’s report on the Twin Cities office market. Class A space in downtown Minneapolis saw positive absorption of 150,409 square feet, offset by a loss for Class B space. The downtown market posted the largest gains of any metro submarket for the year.
In contrast, the 494 Corridor lost ground with negative absorption of 416,217 square feet in the fourth quarter. Offset by gains earlier in the year, the 494 Corridor posted negative absorption of 339,087 for the full year.
But office vacancy rates remain high across the metro.
Overall, CBRE reports direct office vacancy for downtown Minneapolis at the end of the fourth quarter at 19.1 percent compared to a metro wide office vacancy rate of 18.6 percent.
But all office space is not created equal. Class A office space in downtown has a vacancy rate of 11.9 percent, while Class B space has a vacancy rate of 31.9 percent – one of the highest vacancy rates of any category of office space in the metro. Class C office space in downtown has a vacancy rate of 23.5 percent.
A report from Chicago-based Cushman & Wakefield found an even higher direct office vacancy rate for downtown Minneapolis at 19.9 percent. Cushman calculated the overall office vacancy rate, including available sublease space, at 21.9 percent.
Reported vacancy rates always vary from study to study due to different methodologies.
The Cushman & Wakefield report also found a strong uptick in office space available for sublease. The pandemic has driven many companies to try to sublease space that they’re not using. Per C&W, the amount of sublease office space available increased 30 percent from the first quarter to the fourth quarter of 2020 across the Twin Cities.