The Minneapolis CBD has been the most active office market in the Minneapolis-St. Paul metro area since the end of the Great Recession. Through the financial recovery, we have seen new workplace trends emerge that have changed how employees physically work and how tenants view their space. In a time of low unemployment and quickly changing demographics, tenants understand how high the stakes are for attracting and retaining top talent. Locally, we count suburban to urban corporate migrations and watch the arms race of tenants coming up with the most employee-friendly and innovative build-out. The competition for tenants, along with tenant’s interest in attracting top talent, is forcing Class B landlords to breathe new life back into their spaces to stay relevant, or risk high vacancy. These market realities are leading to the repositioning of Class B space with renovations that cater to the interest in more urban creative product.
The Minneapolis CBD has been a top performing market in the Twin Cities metro over the last 5 years. Landlords in the submarket were reaping the benefits of the urban migration. The demand for downtown office space created a decade low in vacancy. Then starting in 2014, Wells Fargo, one of the largest tenants in the Minneapolis CBD, decided to construct 1.2 million square feet in the up-and-coming Downtown East neighborhood of Minneapolis. This consolidated much of their downtown footprint into the newlyowned buildings which were ready for occupancy in 2016. The result of Wells Fargo’s departure from the multi-tenant market in 2016 and 2017 resulted in a large amount of Class B vacancy throughout the Minneapolis CBD. Building owners were faced with the question of how to handle the new vacancies in their buildings.
Many landlords opted for the reposition approach and refreshed their buildings to make their vacancies more desirable. Most commonly, the renovations bring back the design and feel of historic brick-and-timber buildings. Now with the amenities of traditional Class A buildings, a new type of product offers the best of all worlds and fosters creative work environments.
The demand for this new creative space is a result of shifting requests from tenants. As the workforce becomes younger, there is less value in occupying the high-rise Class A assets that our grandfathers or fathers worked in. Rather, technology has changed how people work and has put a higher value on collaboration. In a typical transition from an older Class B space to a new urban creative feel, the building entrance, building amenities and other common areas are usually the first investments made by landlords. These first impression points are important in welcoming guests to the building. Additionally, the physical floorplates are typically opened up, removing office walls while exposing ceilings. This creates a new, open and flexible workspace that is not often seen within traditional buildings.
As a tenant, there can be significant cost benefits to moving into a renovated urban creative space. Where there may be some rent savings in choosing a Class B building over more expensive, established buildings, the savings could be allocated to additional space build-out or an investment in the workplace culture.
There is high demand for the creative feel of historic buildings seen in the North Loop. But tenants now have a new option, thanks to the surge of repositioned Class B space that offers the same ambiance and culture enhancements with the added benefit of the skyway system and infrastructure of the Minneapolis CBD.
See the full report here: Q2 Colliers MSP Office Market Report