[Editor’s note: This story was updated on May 25.]

Though more companies are calling their workers back to the office, the outlook for the Twin Cities office market remains uncertain.

The region lost more than 824,000 square feet of tenancy in the first quarter of 2021, according to a new report from the Twin Cities office of commercial real estate firm Colliers. The market’s vacancy rate also ticked up to 9.3 percent compared to 7.1 percent in the same quarter last year. If those numbers seem small, it’s because Colliers measured vacancy differently than other firms. Unlike many other office market reports, Colliers included owner-occupied space in determining vacancy. Dirk Koentopf, research manager at Colliers, says that excluding owner-occupied space paints a “woefully incomplete” picture of the overall market.

“Over the years, the reports have only looked at the multi-tenant market to placate investors and owners,” he said. “But single-tenant properties are competing with existing office space. When we look at it, it’s a fuller picture of the office market.”

A recent report from Cushman & Wakefield put the national office vacancy rate at 16.4 percent for the first quarter of the year. For Minneapolis, that number was 19.9 percent. That report excluded owner-occupied space.

Meanwhile, the Colliers report noted that “physical occupancy has been bleak both in the Minneapolis-St. Paul market and across the nation. Many companies are now faced with the question of when, how, and whether to fully return to work as they gradually have been bringing workers back to the office.”

Perhaps unsurprisingly, the central business districts in both Minneapolis and St. Paul had the highest vacancy rates in the market at 11.7 percent and 11.6 percent, respectively. What may be surprising, though, is that the Minneapolis central business district was the only segment of the market to post a positive absorption in the first quarter. The city’s central business district logged a positive absorption of 218,311 square feet of office space. That was largely due to the city of Minneapolis moving into its new 11-story, 380,000-square-foot public services building.

“This directly offset first quarter losses in occupancy,” Colliers researchers said.

Of course, those figures don’t factor in Target Corp.’s decision to end operations in the City Center complex, where the retailer still leases nearly 1 million square feet of office space. That would certainly be a huge blow to the office market space in Minneapolis’s central business district. But despite all the fanfare about the move, Colliers researchers noted that it’s not technically a done deal quite yet.

“Target has not listed the City Center space for sublease yet, indicating that it might not be willing to the pull the trigger until it tests its flex working model post-pandemic,” they wrote in the report. “It may hold on to the relatively inexpensive space until well after bringing employees back to the office.”

Researchers also pointed to a few “bright spots” in downtown Minneapolis: Deluxe Corp.’s decision to relocate from Shoreview to downtown Minneapolis, along with the Dayton’s Project finally landing its first office tenant. Those developments “suggest prospective tenant interest will come back along with the rest of the market,” Colliers researchers wrote.

Meanwhile, St. Paul’s central business district logged a negative absorption of nearly 40,000 square feet. It wasn’t a spectacular quarter for Twin Cities’ suburban markets, either. The I-494 corridor lost nearly 225,600 square feet of office tenants in the quarter, while the I-394 corridor lost nearly 170,000 square feet. The latter corridor is home to the new 10 West End complex in St. Louis Park, which features a number of new amenities designed to attract tenants in the post-Covid era.

“While we’ve heard rumors of CBD tenants’ imminent flight to the suburbs, relatively few deals have come to fruition,” Colliers researchers wrote. “However, tenants that have never considered the suburbs before are taking the opportunity to test the waters outside of downtown, whether by completely moving to the suburbs, taking less space due to work- from-home strategies or trying the hub-and-spoke model (keeping a small downtown footprint and renting satellite offices in the suburbs).”