Minneapolis Office Market Reports | Avison Young US - Minneapolis
Minneapolis–St. Paul office market report
The Twin Cities Office Market continues to see companies sublease major headquarters and decrease space. Q4 2023 saw a slight decline in overall availability rates, maintaining an 18.8% direct availability rate and decreasing to a 3.2% sublet availability as subleasing activity has increased considerably in 2023. After three quarters of negative net absorption, Q4 2023 saw positive net absorption, although the annual net absorption for the market remains negative.
of space expiring in 2024/25 is within Trophy/Class A
Nearly two-thirds of space expiring in the next two-years is within high quality buildings, based on leases tracked by AY. Within these assets, over 25% of the expiring space is medium-sized spaces (20KSF – 50KSF), while nearly 70% of the expiring space within Class B/C assets is larger spaces of 50KSF+. In the ‘flight to quality’ trend, tenants are seeking to reduce their footprints and occupy the highest-quality spaces. As such, tenants vacating Class B/C spaces are presented with the opportunity to occupy upcoming availabilities within higher-quality assets more in-line with their space needs.
Positive net absorption observed in Q4 2023
Q4 2023 was the period with the largest amount of positive net absorption since the end of 2021, driven by positive net absorption being recorded in all but one submarket –Minneapolis CBD. The areas experiencing the most robust positive net absorption are the North Loop and West End submarkets, seeing availability rates decline by (4.8%) and (6.7%), respectively. The one submarket with negative net absorption, Minneapolis CBD, represents an area of cooling demand, as evidenced by numerous tenants leaving downtown throughout 2023.
Sale price PSF lower than prior 5-year average PSF
2023 saw a substantial decline in sale price per square foot, averaging $88/SF –which is $50/SF lower than the prior 5-year historical average of $138/SF. 2023 saw a total of over $385M in sales volume across 26 transactions. Of which, Trophy/Class A assets accounted for nearly 80% of the sales volume and just 27% of the transactions. With Class B/C assets accounting for just over 20% of the volume and 73% of the transactions, these lower quality buildings selling at discounted prices have driven the Sale Price PSF down considerably in 2023.
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