Metro Office Occupancy Drops for Third Straight Quarter
Downtown Minneapolis David Bowman

Metro Office Occupancy Drops for Third Straight Quarter

Colliers report sees “flat” outlook for Twin Cities office space.

If everybody’s working from home, who needs office space?

A new report on the Twin Cities office market from Colliers International shows that the market has not completely collapsed. Across the metro Colliers reports negative absorption of 131,423 square feet for the second quarter. That means office tenants shed space from April through June, but not much.

That’s largely because the bulk of the deals signed in the second quarter were already in the pipeline when the pandemic hit. But what happens next is uncertain. Per the report:

“Most tenants that had not started negotiations by mid-March paused to reevaluate their needs as work-from-home became necessary. However, they are now left to wait and see what this means to their overall needs for office space as they start phasing their return to the office.

While some tenants have already started returning to the office, many plan to continue to have clients work from home through the end of 2020. Landlords are reporting building personnel occupancy of 10 to 20 percent, with only mission-critical employees on site.”

“Absorption” is commercial real estate jargon to measure the change in the amount of occupied space from one reporting period to the next. Positive absorption signals that tenants are signing leases and expanding; negative absorption reflects tenants shrinking and leasing less space. Toronto-based Colliers International ranks among the world’s largest commercial real estate service firms.

The second quarter marked the third consecutive quarter of negative absorption in the metro office market. That suggests that the overall economy was started to cool before anyone had even heard of Covid-19. For the first six months of the year, Colliers reports negative absorption of 311,541 square feet for the metro. Colliers reports the overall office vacancy rate at 13.7 percent at the end of the second quarter.

Remarkably the only submarket to see positive absorption in the second quarter was downtown St. Paul, which has been a challenging office market for decades. Per the Colliers report, the capital city posted 20,048 square feet of positive absorption for the second quarter.

But year-to-date the southwest suburban market is the only office submarket space that saw positive absorption for the first six months of 2020 with a gain of 186,131 square feet.

Colliers reports that downtown Minneapolis has posted negative absorption of 56,395 square feet so far this year.

What will the office market look like for the rest of the year? It can be boiled down to a single word from the Colliers forecast: “Flat.”