MARKET INSIGHT

Q4 2025 Twin Cities Office Insights: Stabilization with Selectivity

Forte’s Kate Damato, Senior Associate-Real Estate Advisory, provides insight to the Twin Cities office market report recently released by MNCAR/REDI.

The Minnesota office market has appeared to bottom out, but the recovery remains capital-constrained and highly selective. Leasing activity continues to favor smaller footprints, renewals over relocations, and a sustained flight to quality. While overall demand remains measured, the market is increasingly defined by strategic decision-making against a backdrop of rising costs and evolving landlord economics.

A Market of Trade-Offs: Renew vs. Relocate

For many tenants, the decision to renew versus relocate has become a critical strategic consideration. The cost to relocate—driven by higher construction costs, longer lead times, and capital constraints—has pushed many credit-worthy tenants toward renewals. In response, landlords are deploying concessions aggressively to retain existing tenants, while select owners continue to compete for new demand by offering compelling economics in high-quality assets. These dynamics vary significantly by submarket, with suburban office environments benefiting from stronger demand than downtown cores.

Leasing Activity & Absorption Trends

While Q1 through Q3 2025 delivered overall positive absorption, momentum softened in the fourth quarter. Q4 closed with approximately 1.1 million square feet of direct negative absorption, bringing total year-end absorption to negative 764,300 square feet across all office properties. Downtown Minneapolis and St. Paul continue to face headwinds, while suburban markets remain the market’s bright spot.

The North Loop was a notable exception within the urban core, recording positive net absorption following the relocation of Piper Sandler out of the Minneapolis CBD core into the North Loop. Suburban office markets continue to outperform, posting 909,720 square feet of positive net absorption as of year-end, led primarily by Class A assets with strong amenities and modern infrastructure.

Class A Economics: Longer Terms, Higher Rents

In Class A buildings, rising operating and tenant improvement costs are reshaping lease economics. Owners are increasingly seeking longer lease terms – from seven to ten years – alongside higher base rents to maintain reasonable net effective rents. For tenants, this has become a negotiated trade-off: longer commitments in exchange for meaningful concessions and build-out support. Despite these trends, opportunities remain to structure flexible lease terms, particularly for strong credit tenants in desirable submarkets.

Supply Reduction & Long-Term Outlook

Owners, investors, and lenders are recalibrating expectations around deal size, lease duration, and capital deployment. Looking ahead, long-term supply reduction is anticipated through office-to-residential conversions, redevelopment, and demolition of functionally obsolete assets. These reductions are expected to gradually support market fundamentals, particularly for high-quality, well-located office properties.

Major Transactions & Capital Markets

Notable sales in Q4 2025 reflect a continued focus on conversion, renovation, and redevelopment of well-located and underutilized office assets across the Twin Cities. These transactions underscore a growing trend of private capital targeting properties with long-term repositioning potential rather than stabilized office fundamentals.

Pioneer Acquisitions completed the purchase of 100 and 111 Washington Avenue South in Minneapolis for $48.5 million, with future use yet to be announced. In Bloomington, Keading Development Group acquired the Riverview Office Tower and adjacent parking ramp for $5 million, signaling renewed interest in value-driven suburban redevelopment opportunities. In downtown St. Paul, the St. Paul Downtown Development Corporation (SPDDC) acquired the Empire Building at 360 North Robert Street along with the adjacent Endicott Arcade at 134 Fifth Street for $745,000, with plans aligned to SPDDC’s broader vision to revitalize Fifth Street and surrounding blocks.

Collectively, these transactions reinforce the ongoing shift toward adaptive reuse and redevelopment, as private funds continue to invest in Twin Cities real estate with an emphasis on long-term transformation rather than near-term office leasing performance.

Key Takeaway

• • The Twin Cities office market is stabilizing, with performance varying meaningfully by submarket.
  • Tenant demand remains focused on high‑quality space, flexibility, and cost certainty.
  • Landlords are prioritizing retention while selectively competing for new leasing.
  • Outcomes increasingly depend on submarket insight and disciplined lease structuring.
  • Forward momentum favors capital‑aware, long‑term strategies over short‑term moves.

Q4-2025 Minneapolis-St. Paul Office Market Summary

ECONOMIC OVERVIEW:

Historically, according to the U.S. Bureau of Labor Statistics (BLS), the Mpls-St Paul metropolitan statistical area (MSA) has experienced relatively stable unemployment and modest job growth trends. At the time of this publication, current BLS employment and unemployment data were unavailable. As a result, updated unemployment rates and job growth figures for the Mpls-St Paul MSA, the State of Minnesota, and the United States are not reported for this quarter.

MARKET OVERVIEW:

The Mpls-St Paul office market consists of 124.4 msf of space in seven metro counties. This region posted (1.1) msf of negative absorption for Q4 2025 bringing YTD to (764,300) sf negative absorption and showed an overall vacancy rate of 20.8% for all office properties. This quarter showed (1.1) msf of direct negative absorption and subleases accounted for (16,500) sf negative absorption. Multi-tenant only properties posted 24.8% vacancy with (76,600) sf negative absorption bringing YTD to (152,300) sf. During Q4 2025 there were five construction projects throughout the market totaling 359,600 sf.

MARKET HIGHLIGHTS:

The Mpls CBD Northloop market posted direct positive absorption of 107,400 sf led by Piper Sandler leasing 120,000 sf while vacating 123,800 sf from Mpls CBD Core market. The Mpls CBD Core market posted the most in negative direct absorption of (1.2) msf due to Ameriprise Financial consolidating and vacating 959,200 sf. The direct vacancy rate for class A properties has increased to 20.0% in Q4 2025 compared to 18.6% last year for all office properties. During Q4 2025, the market experienced over 1.1 msf of leasing activity in 320 transactions. Seventy one properties with 3.9 msf sold for $447.7 million this quarter.

MARKET MAP:

Image courtesy of Google maps.

Q4 2025 Office Market Report is created by Minnesota Commercial Real Estate Association. For more information, you can reach them at: www.mncar.org

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