Minneapolis Office Market
Quarterly net absorption was negative 131,128 SF after negative 2 MSF in 2023. Negative annual absorption has continued since 2020 led by ongoing corporate downsizing. Large corporate users reduced occupancy levels, including UnitedHealth Group, Best Buy, Target, BlueCross BlueShield of Minnesota, Thomson Reuters, US Bank and Prime Therapeutics. Amidst significant declines in office space utilization, the Minneapolis market continues to see employment declines in sectors depending on office spaces. Information, financial activities and professional and business services have experienced ongoing declines. According to CRED iQ, Minneapolis has the highest commercial property loan distress rate among large metropolitan areas. A few very large loans (IDS Center, Mall of America) push the rate significantly higher than other metro areas. Minneapolis-St. Paul’s current overall distressed rate is 51.5%.
Download Minneapolis Office Market Report 1Q24Minneapolis Industrial Market
The vacancy rate rose from 3.5% to 3.7% as deliveries continued, while absorption slowed. Asking rents increased to $8.78, up from $8.46 in 3Q23. Rates surged by 11.7% in 2023, building on 2022’s growth rate of 9.2%. Asking rates for both new construction and second-generation space will continue to increase. Tenant activity began to decelerate in the last half of the year, with 4Q23 absorption of 1.8MSF and 2023 absorption of 3.6MSF, compared to 6.9MSF in 2022. Over 7.3 MSF was constructed in 2023 and there is currently 5.6MSF under construction. This included the 1MSF The Cubes at French Lake, developed by Chicago-based CRG and located in the outer-ring suburb of Dayton. The project is the state’s largest speculative industrial project. User building sales have slowed considerably due to rising interest rates, though pricing remains historically high. Outside of buildings currently under construction, there are minimal speculative deliveries planned for 2024 and few new buildings are expected to be completed in 2024, except for occasional build to suit projects. Without new construction, vacancy is expected to remain low. Landlords are confident and optimistic, especially those anticipating longer hold periods. Tenants anticipating a shift from a landlord’s market to a tenant’s market will be disappointed.
Download Minneapolis Industrial Market Report 4Q23 Download Minneapolis Office Market Trends 2Q20