MARKET INSIGHT POST
Q2-2023 Minneapolis-St. Paul Office Market Update
Q2-2023 Industrial Market Report created by Minnesota Commercial Real Estate Association. For more information, you can reach them at: www.mncar.org
Forte Principal, Jim Jetland lends insight to the Twin Cities office market report recently released by MNCAR/REDI.
The Twin Cities office market continues to be challenged with rising vacancy, over-all negative absorption, and a continuing increase in available sublease space coming to the market. The Class B and C buildings suffered the most in Q2 while Class A buildings had the most improvement and remains the most active class in the Twin Cities office market.
One silver lining to an otherwise challenged sector is an increase in the number of closed transactions, including direct leases and renewals in Q2. While most tenants have made the decision to reduce their office footprint the fact that real estate decisions and commitments are being made is a positive sign and hopefully an indicator of better things ahead for the local office market.
Q2-2023 Office Market Update
ECONOMIC OVERVIEW:
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) increased 80 basis points to 2.9% for May 2023 from 2.1% for May 2022. The unemployment rate for the US was at 3.6% in June 2023 which is the same as last year. State of Minnesota unemployment rate was 2.9%. The Mpls-St Paul MSA saw an increase in job growth but office decreased in job growth in professional, financial and information with 6,000 during the same period.
MARKET OVERVIEW:
The Mpls-St Paul office market, consisting of 128.6 msf of space in seven metro counties. This region posted (155,500) sf of negative absorption for Q2 2023 and shows an overall vacancy rate of 16.3% for all properties. This quarter showed (73,500) sf of direct negative absorption while subleases accounted for (81,900) sf negative absorption. Multi-tenant only properties posted 21.4% vacancy with (177,000) sf negative absorption. There was (95,000) sf negative absorption for direct space, and (81,900) sf negative absorption for subleases. During Q2 2023 there were 14 construction projects throughout the market totaling 816,000. Seven properties have been delivered YTD with 146,000 sf.
MARKET HIGHLIGHTS:
During Q2 2023, the market experienced over 1.164 msf of leasing activity in 294 transactions. For direct leasing, Mpls CBD markets posted 167,000 sf positive absorption. Fredrickson and Byron led the way by leasing 158,000 sf as they vacated 200,000 sf that US Bank will absorb. The suburban markets posted (145,000) sf negative absorption and St. Paul CBD posted (95,000) sf negative absorption. Sixty one properties with 779,000 sf sold for $79 million this quarter.
MPLS-ST. PAUL AREA EMPLOYMENT STATS:
MARKET RECAP:
All Properties:
Total Inventory: 128,038,586 sf
Total # of Buildings: 1,043
Absorption: (155,503) sf
Vacancy: 16.3%
Asking Rate: $26.55 NNN
New Construction: 816,616 sf
Multi-Tenant Properties
Total Inventory: 88,500,305 sf
Total # of Buildings: 842
Absorption: (177,010)
Vacancy: 21.4%
Asking Rate: $26.57
MARKET STATS BY BUILDING CLASS (Multi and Single Tenant)
ABSORPTION & VACANCY RATE (Multi and Single Tenant)
MARKET STATISTICS BY MARKET (Direct Multi and Single Tenant)
VACANCY RATES BY MARKET (Direct Multi and Single Tenant)
VACANCY RATES BY BUILDING CLASS (Multi and Single Tenant)
LEASE RATES BY MARKET (Direct Multi and Single Tenant FSG)
NEW DEVELOPMENTS
YEAR-TO-DATE DELIVERIES
MARKET MAP
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