Downtown Minneapolis Will Come Back…
Downtown Minneapolis has been largely abandoned since last spring. But on a Wednesday night in late August, a raucous round of looting and window smashing hit the Nicollet Mall like a handful of grenades. Amid the chaos, Brit’s Pub in the 1100 block was set ablaze.
“Looters got in and went through everything. Computers, TVs, broke everything, broke doors, got into the office … for a couple of hours they had a ball, and then decided to set the place on fire,” says Kam Talebi, CEO of Kaskaid Hospitality, which acquired Brit’s in 2019.
Talebi says that the staff called 911 but got no response. “I just don’t think that the police had enough resources to deal with what was happening.”
The outbreak was fueled by false reports that Minneapolis police had shot a Black man on the mall. The man, a suspect in an earlier homicide, actually shot himself in the head as police approached. But the looters and window smashers were not interested in the details.
Talebi sounds unsure about Brit’s reopening. “We certainly will look to bring it back. I don’t know how long it’s going to take.”
He speaks for many downtown business operators airing frustration with the double whammy of the Covid-19 pandemic and the growing perception of downtown as a lawless no-man’s-land in the city.
“There’s no office [workers], there’s no shows, there’s no sports, and everybody fears coming downtown,” Talebi says. “So I’d like somebody to tell me why I should open up.”
Two weeks later, many downtown buildings’ windows were still boarded up, including the Nordstrom Rack at IDS Center, the first level of Target Corp.’s headquarters building, Foot Locker on Seventh Street, and the Caribou Coffee next to Brit’s. Some, like Nordstrom Rack, were open for business.
Taking a spin through the center city these days can be eerie and unsettling. Every day is Sunday afternoon, with light traffic and few pedestrians. “For lease” and “Park here” signs seem to be everywhere. There’s maybe one small silver lining: for once no one is complaining about all the construction.
And less than three weeks after the violence, downtown Minneapolis got some very big and welcome news. Despite chatter about companies looking to flee, Shoreview-based Deluxe Corp. announced that it had signed a lease for 94,000 square feet at 801 Marquette to relocate its headquarters. The news was big enough to draw Gov. Tim Walz to a press conference touting the announcement.
Deluxe, founded in 1915, had 2019 sales of $2 billion. The space will be ready for occupancy in fall 2021.
“It’s very exciting for downtown Minneapolis,” says Reed Christianson, a veteran office broker with Houston-based Transwestern, who focuses on downtown Minneapolis. “It’s what downtown Minneapolis really needed at this time, to see that people still have faith in the city.”
Deluxe president and CEO Barry McCarthy clearly recognizes the statement that the move makes about the future of downtown: “We’re very excited to be part of the solution.”
The Nicollet Maul?
by the Numbers
Pedestrian traffic (compared to 2018): 23.4%
Concerns about public safety in downtown Minneapolis long predate the pandemic. If people fear getting mugged, assaulted, or aggressively hassled, they’re not very likely to spend much time downtown—or sign a lease.
Minneapolis police statistics through Sept. 20 showed a 14.6 percent increase in violent crime—homicide, rape, robbery, assault—in the 1st Precinct, where downtown lies. Those statistics don’t include the chaotic scene on the streets many evenings after dark and the general anarchic feel of downtown in the pandemic.
In mid-July, the 508 Bar in downtown closed its doors for good. Owner Ryan Brevig says that the straw that broke the camel’s back was when Minneapolis police refused to respond to a mid-June call, when large groups of young people had taken over their patios, bringing their own food and smoking pot. Brevig said that both he and Tim Mahoney, owner of the adjacent Loon Café, contacted the police.
“They basically told us, ‘No, we will not be coming down,’ and we advise that you close and lock your doors,” Brevig recalls. “For me, that was kind of it. You know what? If we can’t even ensure the safety of our guests and our staff, what are we doing down here?”
Mahoney says that the incident happened in the middle of the afternoon. After no luck on the phone, Mahoney walked to the 1st Precinct station.
Mahoney says he was told, “If there isn’t a violent crime going on, we’re not coming.”
Stories like that underscore the helplessness that many downtown business owners feel.
Steve Cramer, president and CEO of the Minneapolis Downtown Council, says that the unexpected outbreak of violence in late August illustrates that defunding the police, as some activists and members of the Minneapolis City Council have advocated, is not the solution.
“It again underscores the importance of having the ability through our public safety program to respond in situations where there really is criminality, where there’s crime occurring,” he says. “We should have community outreach and we should have mental health co-responders and all of the complementary strategies that people talk about. But at the core when you have a situation like [the August incident] … you need a law enforcement function. That’s been the crux of a larger debate.”
Forecasting The New Normal
Thrivent’s Brand-New Empty Building
Minneapolis-based Thrivent Financial for Lutherans is in a unique spot. The company completed a 350,000-square-foot office building downtown in June. The company turned over its former home at 625 Fourth Ave. S. to Hennepin County, which recently acquired the property for $55 million. Today, the new building is sitting largely empty.
“We have a small group of critical workers in the building—less than 10 percent,” says Kirsten Spreck, vice president of workforce experience. “When Covid hit, our employees transitioned to working remotely. We thought it was only going to be a couple of weeks, but obviously, here we are six months later.”
Thrivent has a plan for getting back to the office, but it’s not set in stone.
“We’re taking a very measured and phased approach returning to the office. We’ve assembled a core team of leadership to design a plan that can be dialed up or down based on conditions,” Spreck says. “Our remote work environment will stay in place until at least January.”
At that time, the company will evaluate whether it makes sense for people to start reporting to the building or not. Spreck says that working from home is going to rewrite some rules for working in the office.
“It used to be that if you wanted to work from home, you needed to make a case. It was like a special reason,” Spreck says. “I think that’s going to flip-flop on us. I think it’s going to turn into, ‘Hey, I want to go to the office and connect with my team,’ and that’s going to be the special occasion.” —B.G.
What will downtown Minneapolis look like when Covid-19 is under control and people start returning to work? Everyone has a prediction. But no one really knows.
There are no modern precedents for the pandemic. In the Great Recession, people lost jobs, but could still eat a sandwich in a restaurant, see a movie, go to a concert, watch a baseball game in person, or meet up with friends at the coffee shop to plot their startup.
The entire downtown ecosystem is now in suspended animation. Few workers are coming in, which means little business for restaurants and skyway shops, a large number of which have closed. Travel has cratered, leaving downtown hotels in tough shape.
Big cities across the U.S. are all facing the same problem. A New York Times story in September reported that less than 10 percent of New York’s office workers had returned. Down the road, only 54 percent of large corporations surveyed said that they planned to return to the city by July 2021.
New York-based Moody’s Analytics REIS noted in its second-quarter U.S. office market report that most companies have long-term leases. That buys the office market some time and offers some stability in the short term:
“The most extreme predictions are unlikely to come true: We are not going to be a nation that works 100 percent from home. Furthermore, given the long-term nature of office leases—the average lease term is close to 10 years, according to Moody’s Analytics data partner CompStak; greater than 12 years if limited to office leases that are 100,000 square feet or greater—any trend of companies giving up space will happen over the next 3 to 10 years.”
But paid leases don’t mean full offices. For starters, there will be fewer workers in downtown under just about any scenario.
“There’s not going to be the 218,000 daytime workers that we reported at our annual meeting on Feb. 12 of this year,” Cramer says. “Even if every single company in downtown came back to the office … what we’ve been hearing consistently is that remote work is just going to be a more routine part of the employment experience. So on any given day, some number of employees are going to be at home working.”
Cramer regularly talks to human resource leaders for downtown’s larger employers, but he has no predictions about the percentage of workers that will return. But fewer workers means fewer restaurant customers. “The other thing that seems clear, and it’s unfortunate … we’re just going to have fewer restaurants in that new baseline when we reach it sometime next year.”
Christianson says it will be key for downtown’s big employers to bring people back, which will also have the effect of putting more people on the streets again.
“We need Target, we need Wells Fargo, we need Ameriprise. We need the big users to get their plan in place,” Christianson says. “It has to be driven by these big users.”
The date companies return keeps getting pushed into the future, as the pandemic’s duration becomes clearer. Still, Christianson believes that over the long haul, working from home will not be ideal for companies.
“It works fine to work from home once in a while, here and there. But to permanently work from home? It’s really hard on a company that’s trying to create collaboration. People are just getting a little fatigued over all of this.”
He insists that there are more big deals to come in the wake of the Deluxe news. “There’s a decent pipeline of activity” with the Dayton’s Project, where Transwestern is handling the office leasing. The project is a top-to-bottom multiuse overhaul of the vintage 12-story building in the heart of downtown, which housed the last department store in the district to close its doors.
A statement from Chicago-based Telos Group, one of the project partners, brims with optimism: “At the Dayton’s Project, we feel excited about the conversations we’ve been having and leasing momentum we’ve generated, even during Covid-19. Construction activity continues on the building, and we’re preparing for when businesses are ready to come back to the office. We’ve seen interest from both global and local companies.”
So far, however, the Dayton’s Project has 750,000 square feet of office space to lease and no signed tenants.
Downbeat Data and Hope
Not everyone fled downtown when the pandemic hit.
“We never left,” says Todd Hayes, president and owner of Crawford Merz, a general contracting firm focused on interior design work. The company has a 6,000-square-foot office in the City Center tower. “We work very collaboratively; personal interactions are important,” Hayes says. When the pandemic started, Hayes had 17 employees in his office; he’s down to 10 as business has atrophied. “Business is down 50 percent,” Hayes says. “There seems to be a lot of people kicking tires but not a lot of people making decisions.”
Beyond finding it tough to get something to eat these days, Hayes is critical of the mayor and city council for not taking strong action to avert a “downward spiral” with respect to public safety downtown: “They aren’t understanding that the CBD (central business district) is their tax base.”
Mayor Jacob Frey could not be reached for comment, despite numerous requests. But concerns about downtown’s fate notwithstanding, Hayes likes his office. “We have three years left on our original lease,” Hayes says. “This space has been good for us.”
Before the pandemic hit, downtown Minneapolis was already emptier than many people realized. A midyear report from the local office of Chicago-based Cushman & Wakefield reported office vacancy at 18.9 percent at the end of June, compared with the metrowide vacancy rate of 17.2 percent.
According to the report, 5.3 million square feet of office space is sitting empty in downtown Minneapolis—enough to fill several large office towers. There are also nearly 400,000 square feet of sublease space on the market. Adding the sublease space, the downtown vacancy rate is 20.3 percent.
But veteran office broker Jim Vos, a principal with the Minneapolis office of Washington, D.C.-based Cresa, reports he’s started to see an uptick in his firm’s tenant representation business.
“We’re seeing people looking over the hill and saying, ‘It isn’t going to [be] awful forever,’” he says. “I think downtown will reanimate. … I think the energy of being together is something that people are really hungry for.”
Vos recalls a recent comment from a local CEO: “We are not going to build culture from our couches.”
The New Normal
Co-working has been a big trend in the office space market in recent years, but since the pandemic hit, many have forecast a bleak outlook, because the spaces often feature working closely together. Kyle Coolbroth, co-founder and CEO of Minneapolis-based Fueled Collective, believes that ultimately co-working space could nonetheless benefit from worklife changes.
“For a long time, we were a niche alternative for a certain segment of the working population,” he says. “I think we’re entering into a new phase of the U.S. work economy, which is going to be worker choice. I think that that’s going to include home office plus other locations.” Coolbroth says that Fueled Collective has been in contact with large enterprise companies and small businesses about future possibilities.
“We’re hearing from a wide range of people who are looking to what’s next,” he says. “Lease renewals, I think, are going to drop off, and people are going to look for flexibility. Co-working is perfect for that.”
Coolbroth says that companies can tap co-working spaces for meetings or short-term private offices.
“I think location co-working like ours is going to be a more frequent stop for more people and more workers, probably on a more flexible basis. They’re not going to be there all the time. I think that that’s going to become a core part of the way people go back to work,” he adds, noting, “We don’t really see a return to normal. We see a new normal.”
University of Minnesota economics professor V.V. Chari, who also advises the Federal Reserve Bank of Minneapolis, says that broad trends of working and housing going back 30 years point to people working closer to each other, not farther away.
We need Target, we need Wells Fargo, we need Ameriprise. We need
the big users to get their plan in place. It has to be driven by these big users.
—Reed Christianson, office broker, Transwestern
“In a pure technological sense … you could work remotely,” Chari says. “But people have, in fact, sought to work in even more close proximity with each other than they used to.” He does not think the apocalypse is at hand for downtown Minneapolis and other cities. “I lean more to the ‘things will go back to normal’ view of the world.”
So when will downtown fill up again?
“That’s a tough area to forecast, but my own guess is that by the first quarter of 2021 we’ll all be back downtown,” he says, then adds a qualifier: “But who knows?”
Accelerating The Future
What if it turns out that the pandemic doesn’t spell the end of downtown Minneapolis, but actually holds the key to its future? What if?
Sound crazy? Not to Tom Fisher, architecture professor and director of the Minnesota Design Center at the University of Minnesota. Fisher co-taught a summer course on the post-pandemic world and is blogging and podcasting on the topic.
“Every plague has the effect of essentially accelerating societies into the future. It’s an odd thing,” he says. “After the cholera plagues [in the 19th century] we started to put in sanitary sewers in cities, which accelerated urban growth. After the 1918 flu pandemic, it accelerated buying automobiles and accelerated suburbia [nationally] because people wanted to socially distance.”
But he does agree there will be too much empty space in downtown Minneapolis. Fisher says it will make sense to find alternative uses.
“We’ll have too much retail space, we’ll have too much office space … and we don’t have enough of other kinds of space,” says Fisher, citing affordable housing as one example. “The density of office workers downtown is going to decrease. … What would IDS Tower look like if it was half offices and half apartments?”
Earlier this year, the Downtown Council reported that area had more than 51,000 residents, with several housing projects under construction. Fisher expects to see the number of downtown residents increase and thinks it’s likely that some office buildings will be converted into housing. He says that the concept of the office will survive but be transformed in the wake of the pandemic.
“We will still have offices, but the idea of the office as this place you commute to nine-to-five every day and sit in an office or in a cubicle and do your work—I think that is going to largely disappear. The office of the future will be this place where people come together to do things that they need to do face-to-face.”
At the end of the day, Fisher sees an intriguing future for life after the pandemic.
“I think this is an entrepreneurial era. There are all kinds of opportunities that are going to come out of the pandemic. [In] past plagues, economies actually rebound, but [the future economy is] a very different economy than the one we just left behind,” Fisher says. “If you’re holding onto the past, yeah, it looks all doom and gloom. But if you’re willing to think about how people’s lives are changed and what the new needs might be, there are all kinds of economic opportunity. We just got accelerated into the future.”
What Large Companies Are Thinking
Wells Fargo & Co.
“Through at least November 1, we will continue with our current operating model, which includes about [77% of] employees working from home and maintaining safety measures in locations that remain open. We do not yet know when we’ll return to a more traditional operating model. We are creating a thoughtful, phased plan for returning to the workplace, and we will use guidance from health experts to maintain a safe workplace for all employees, including those who have continued to work from the office and those who will be returning to the office over the course of time.”
—Steven Carlson, vice president, Wells Fargo Corporate Communications
“Our priority continues to be the safety and well-being of our team. We’re taking a gradual approach to returning to the office, with the vast majority of team members working remotely for the rest of 2020.”
—Target corporate statement
Sleep Number Corp.
“We haven’t set a defined ‘return to office’ date but are telling team members that it’s not in the immediate future—it will likely be early 2021. We do have about 10 percent of the office [roughly 70 people] coming in on a daily basis; those are individuals whose jobs [like R&D] require them to be in the office. We’re monitoring both the Covid and [public] safety situations very closely.”
—Julie Elepano, spokeswoman
City of Minneapolis, opening new office building in November
“The current plan is a phased move-in for departments mid-November through mid-January 2021. Departments are working on Covid protocols. Given the pandemic, these plans are subject to change.”
—Sarah McKenzie, spokeswoman
This story appears in the Oct./Nov. 2020 issue with the title “Downtown Will Come Back…”