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NAIOP 2011 Office Update « CGC Commercial
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NAIOP 2011 Office Update

by Chris Garcia, 11:47 AM on November 16th, 2011, No Comments

The NAIOP Office update was held November 15 at the West End in St Louis Park, MN.  It featured area brokers and one investor.  The overall sentiment was that the market is improving but will likely not see rent increases for at least 12 months.   Concessions are still being offered however there are some areas in the market where Landlords are starting to tighten their offers.  No new developments were discussed in the program  however there is one development in Uptown which is the 65,000 SF Mozaic building.  Here are some of the numbers:

  • 540,000 SF of absorption in the last 12 months
  • 340,000 SF from Minneapolis CBD alone
  • 17.7 % metro wide vacancy rate
  • 14% Class A vacancy rate
  • 21% St Paul CBD vacancy rate

The most bullish sub market is the Minneapolis CBD.  With 340,000 SF of new space leased and a 10% Class A vacancy rate, it is by far and away the best sub market in the Twin Cities.  Several new developments were discussed including the Hines site in the warehouse district and a site on Nicollet.  The biggest issue with new construction is rental rates, since rates need to be in the low $20’s per square foot (currently around $14) we will need to see significant rent growth to support a new tower .   Look for an increase in rental rates in this sub market where other markets are likely to stay flat.

The most bearish submarket is St Paul with vacancy rates of 21% in the CBD and 20% in the suburbs.  Overall that market had negative absorption and an overall negative sentiment.  If you are looking for the lowest rental rates in the Twin Cities, St Paul is where you will find it.

The south west metro had a good 12 months posting 420,000 SF of positive absorption.  They were led by United Health Group which purchased the ADC Corporate Headquarters and have been aggressively taking space.  The south west did see some large vacancies come back including the 100,000 SF ATK Corporate headquarters.  The vacancy rate remains high at 18%.

Finally the northwest sub market showed negative absorption at 95,000 SF.  The vacancy rate is 17% and sounded flat in comparison to the southwest and Minneapolis CBD.

Some of the larger vacancies that remain in the Twin Cities include the Delta/Northwest Headquarters at 300,000 SF, the 400,000 SF State Farm building, the 100,000 SF Buffets Inc Headquarters, and ATK’s 100,000 SF.  The area has been hit hard by corporate downsizing.

Moving forward, the predictions are for very modest absorption.  Most submarkets are expecting under 200,000 SF of absorption where you would see 400,000 SF in a healthy market.   Overall a very good presentation of the market.

The featured panelists were Tom Tracy, Dan Gleason, and Tom O’Brien from Cushman/Wakefield, Chris Rohr from Jones Lang Lasalle, Mike Salmen from Transwestern, Ted Holmes from IRET, and Dick Keller.

 

 

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