Q3 2020: OFFICE MARKET UPDATE
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) increased 500 basis points. To 7.9% for August 2020 from 2.9% for August 2019. The unemployment rate for the US was 8.4% in August 2020 up from 3.7% last year. State of Minnesota unemployment rate was 7.4%. The Mpls-St Paul MSA saw a decrease in job growth. As well as a decrease in office job growth in professional, financial and information dropping 21,300 during the same period.
The Mpls-St Paul office market, consisting of over 128 msf of space in seven counties across the metro topping 95,000 sf negative absorption for Q3 2020. The vacancy rate for the market stands at 12.5% for all properties. Multi-tenant properties posted 16.4% vacancy with over 64,000 sf negative absorption. The average asking lease rate for Mpls-St Paul came in at $25.02 psf FSG. During Q3 2020 there were 9 construction projects throughout the market totaling just over 1.3 msf.
During the Q3 2020 the market experienced over 1.1 msf of leasing activity in 251 transactions. Class A properties vacancy rate dropped for all properties this quarter to 10.3% compared to 8.8%. It also dropped to 15% for multi-tenant properties compared to 12.7% Q2 2020. For multi-tenant properties the Northwest market posted the lowest vacancy rate at 10.6%, Mpls CBD vacancy was 18.7%, St Paul CBD was 18.4% and suburban markets was 14.6%. Southwest market posted the most positive absorption of 137,000 sf with The Nerdery leasing 60,000 sf and new delivery of Bridgewater Corp. The West market posted the largest negative absorption of 125,000 sf for all property types led by Dominium space available for lease with 53,000 sf.
The Mpls-St Paul market consists of single and multi-tenant office buildings 20,000 sf or larger or part of a complex larger than 20,000 sf. The geographic area includes Anoka, Carver, Dakota, Hennepin, Ramsey, Scott and Washington counties. The tracked set does not include medical or government properties. All tracked properties are existing. Statistically, net absorption will be calculated based on occupancy change during the current quarter. Asking lease rates are based on an average asking rate and noted on a FSG terms with Net type leases grossed up.
View Full Report: Q3 2020 MNCAR Office Market Report
Source: Minnesota Association of Realtors (MNCAR)
Q3 2020: OFFICE MARKET UPDATE
SUBLEASING IN TODAY’S MARKETPLACE
Subleasing in today’s market is commonplace. There are a variety of reasons why firms sublease their excess space. However, for those who intend to sublease, some caution is appropriate.
Make sure to check on the credit and payment history of the firm subleasing the space, particularly if they will pay any part of the gross rent due and payable to the Prime Landlord.
Carefully read and understand the tenant obligations under the Prime Lease. This is often an attached exhibit to the sublease document. The Subtenant’s obligation is to comply with the terms of the Prime Lease.
Make sure to receive the Prime Landlord’s formal approval, in writing. Sometimes this is as simple as a signed consent note on the signature page of the sublease document. On the other hand, the consent form can be several pages. If the Prime Landlord’s consent in the Prime Lease is something other than “reasonable,” make sure to understand what the “other” stipulations are.
If modifications are made to the space, understand the obligations in respect to the lease. Removing modifications may be a requirement upon termination of the sublease.
Make sure the life safety and exiting requirements meet local codes. Often times, a space carved from a larger space does not meet the proper exiting requirements, which may mean extra costs.https://paramountre.com/agent/phil-simonet/
For more information on subleasing space, reach out to our experts:
Phil Simonet, Principal | John Young, CCIM, Vice President | Nancy Powell, Vice President | Jeffrey Swanson, Associate | Joseph Schultz, Associate | Jack Buttenhoff, Associate
MID-YEAR 2020 OFFICE MARKET UPDATE
UNDERUTILIZED OFFICE SPACES
The office market holds on while companies extend work from home options into 2021. While the expectation stays the same that amenities will continue to drive demand, those amenities have gone nearly unused during Q2 2020. It is anticipated that in upcoming months, those underutilized spaces will help alleviate some congestion as workers return and a relief valve is needed for the more heavily occupied tenant spaces. For now, every other chair is literally turned on end. Parking ramps and common area cafés remain empty and there isn’t a waiting line in the elevator lobby. Certainly, leased office spaces are currently underutilized. Because of this, a reduction in operating costs due to lower utility and cleaning costs could be forthcoming.
POSITIVE ABSORPTION & LOW INVENTORY
The above narrative however, is not reflective in the Q2 data as businesses, bound by leases, utilize PPP programs to keep productivity up. Unemployment surged in May 2020 to 10.4% from 2.6% in May 2019. Even with that bad news, the overall office market experienced 664,000 square feet of positive absorption ending Q2 with a total market vacancy rate of 12%. Focusing on multi-tenant properties only, the overall vacancy rate hovers at 15.7%, 0.3% up from year end 2019. The clear winner continues to be the Northwest submarket with an overall multi-tenant vacancy rate of 9.5% with overall quoted gross rental rates averaging $21.95/SF. The Northwest market is a sharp contrast to the 20% vacancy rate experienced in St Paul CBD. These two markets show quoted gross rates that are nearly equal at $21.98/SF.
Total sales volume for Q2 surpassed 1.3 million square feet. Low interest rates continue to drive sales but inventory is low and investors have few options readily available.
Returning to the office remains unknown to many employees. Much rides on finding a vaccine. Mass transit and social distancing don’t mix well and parking lots have disappeared in the downtowns. Winter is calling, so keep wearing your mask and together we will ride this out.
Written by: Nancy Powell, Vice President
Q1-2020 Office Market Report
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) decreased 30 basis points to 3.1% for February 2020 from 3.4% for February 2019. The unemployment rate for the US was 3.5% in February 2020 down from 3.8% last year. State of Minnesota unemployment rate was 3.1%. The Mpls-St Paul MSA saw an increase in job growth but a decrease in office job growth in professional, financial and information dropping 1,200 during the same period.
The Mpls-St Paul office market, consisting of over 125 msf of space in seven counties across the metro topping 133,000 sf negative absorption for Q1 2020. The vacancy rate for the market stands at 12.0% for all properties. Multi- tenant properties posted 15.6% vacancy with over 48,800 sf positive absorption. The average asking lease rate for Mpls-St Paul came in at $24.59 psf FSG. During Q1 2020 there were 22 construction projects throughout the market totaling just shy of 2.9.
During the Q1 2020 the market experienced over 1.2 msf of leasing activity in 283 transactions. Class A properties vacancy rate started the year at 9.0% for all properties and 13.1% for multi-tenant properties. For multi-tenant properties the Northwest market posted the lowest vacancy rate at 9.7%, Mpls CBD vacancy was 16.2%, St Paul CBD was 20.5% and suburban markets was 14.4%. Mpls CBD Core market posted the most positive absorption of 141,000 sf with Merrill Corp lease of 78,000 sf topping the list. Southwest market posted the largest negative absorption of 182,000 sf for all property types primarily due to Comcast vacating 108,000 sf and Cliqstudios vacating 104,000 sf in a single tenant properties.
Employment: up 1,969,253
Area Unemployment: down 3.1
U.S. Unemployment: down 3.5
Office Jobs: down 516,60
Total Inventory: 126,158,494 sf
Asking Rate: $24.59
New Construction: 2,895,944 sf
MNCAR: Q1-2020 Industrial Market Report
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St Paul metropolitan statistical area (MSA) decreased 30 basis points. This is 3.1% for February 2020 which is down from 3.4% for February 2019. The unemployment rate for the US was 3.5% in February 2020 down from 3.8% last year. State of Minnesota unemployment rate was 3.1%. The Mpls-St Paul MSA saw an increase in job growth but a decrease in industrial jobs in manufacturing dropping 400 during the same period.
The Mpls-St Paul industrial market consists of 258 msf in eight counties across the metro and posted over 223,000 sf of positive absorption for Q1 2020 while 184,000 sf positive absorption for multi-tenant properties. The overall vacancy rate for the market stands at 4.7% and multi-tenant vacancy was 7.4% for Q1 2020. The average asking lease low rate was $5.81 and high rate was $9.35 NNN for Mpls- St Paul. To date, there are 23 construction projects throughout the market totaling just under 3.7 msf and 5 properties were delivered this quarter with 575,902 sf.
At the close of Q1 2020, the market experienced over 2.2 msf of leasing activity in 194 transactions with AbelConn leasing the largest space of 110,329 sf in the Northwest market. The Southeast market vacancy rate being the tightest at 4.1% for all properties while the Northwest market topped at 6%. The Northeast market had four of the top five property spots in absorption with Bluvera leasing 93,000 sf, Hajoca leasing 75,845 sf and Lindenmeyr Munrow leasing 60,102 sf. The Northwest market experienced the largest vacancy of Honeywell with 250,000 sf. The Southwest market held the next two spots with Sams Club vacating 180,000 sf and Quad Graphics/ American Color vacating 160,000 sf.
Total Inventory: 258,482,636 sf
Total # of Bldgs: 3,004
Asking Rate Low: $5.81 NNN
Asking Rate High: $9.35 NNN
Under Construction: 3,728,557 sf
TWIN CITIES MARKET SNAPSHOT
The Minneapolis-St. Paul Real Commercial Estate Market continues to perform admirably with office and industrial sectors demonstrating excellent performance throughout 2019. The Markets characteristics remain upbeat and include positive net absorption of vacant space, moderate to low vacancy rates and measured new speculative development. Economic conditions remain favorable however, recent statics raise concern for the continued overall economic growth in Minnesota and the USA. While inflation continues to remain low at about 2% (annualized), unemployment has increased from 2.5% to 2.9%. Median income for Minnesota households as stagnated year over year at $70,300. Both still much better numbers than the national averages of 3.4% unemployment and median household income of $63,179 respectively. The 15 month trade war with China combined with all of the uncertainty in Washington DC (impeachment and gridlock) and slowing business investment-down 1% on an annualized rate last quarter create potential headwinds to sustained future economic growth.
Industrial has been the best performing asset class of real estate since the Great Recession in 2009. Vacancy rates are at an all-time low (4.9%) in a Twin City universe of 248 million square feet and have decreases by 1% since the beginning of 2019.
Net Absorption of available space stands at 2.73 million square feet through the third quarter of this year. With bulk (high-bay) warehouse experiencing 1.74 million square feet of net absorption. Driving the net absorption has been e-commerce related companies localizing the distribution of almost everything now available on the internet.
To date there are 27 industrial projects under construction totaling 3.6 million square feet. 1.9 million square feet has already been delivered to the market.
Collectively, what all this most likely indicates is a continuation, at least through 2020, of relatively good conditions and performance for the industrial market. The two current deterring factors, other than an economic slowdown, are the cost of tenant improvements and finding and hiring employees.
The office market continues its long standing recovery albeit some sub markets are stronger than others. The overall office vacancy rate for all Twin Cities office properties is 11.8%, which is down .8% from January 2019, however within multi-tenant properties the vacancy rate is 15.4%. The northeast office market has the lowest vacancy rate at 8.6% and St. Paul CBD has the highest vacancy rate approaching 20%. Class A multi-tenant office space has the lowest vacancy rate at 12.5%. Class B Office space is at 17.7% and Class C is 13.8%.
Net absorption Year to Date is 363,871 square feet. Actual absorption Year to Date is 504,247 square feet, however sublease space create 128,052 square feet of negative absorption.
The office market performance has instilled enough confidence in a local developer to spec a 361,104 square foot office building in the West End mixed use development named 10 West End. Net rental rates are projected to start at $25.50/sf.
One new office market characteristic that has been gaining momentum is the demand for building amenities. Many office buildings have completed or are planning to complete updates to building common areas, add amenities such as work out areas, coffee bars, common area meeting spaces, food service, and concierge services among other things. Many of today’s sophisticated tenants want space that is fun and functional. They want space that will retain and attract top talent in the current tight labor market.
Written By: MNCAR/Redi Comps
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the Mpls-St. Paul metropolitan statistical area (MSA) increased 40 basis points from 2.7% in May 2019 to 2.3% in May 2018. The unemployment rate for the U.S. was at 3.6% in May 2019, down from 3.8% for the Y-o-Y for the US. The Mpls-St. Paul MSA saw a decrease in office job growth, professional, financial and information increased by 1,200 during the same period.
The Mpls-St.Paul office market, consisting of over 127M SF of space in seven counties across the metro posting 131,600 SF positive absorption for Q2 2019. The vacancy rate for the market stands at 11.3% for all properties for Q2 2019. Total year-to-date absorption is 256,750 SF. Multi-tenant properties posted 14.9% with 175,000 SF positive absorption . The average asking lease rate for Mpls-St. Paul came in at $24.30 PSF FSG. To date, there are 15 construction projects throughout the market totaling over 2.7M SF.
During the second quarter 2019 the market experienced over 1.1M SF of leasing activity and the vacancy rate finished the quarter at 11.3% in total. Class A properties ended the year at 8.6% for all properties and 12.7% for multi-tenant properties. The West market posted the lowest vacancy rate at 11.3% for multi-tenant properties. For the second quarter the West Market carried the market with the most positive absorption of 63,000 SF. St Paul CBD posted the largest negative absorption of 90,000 SF.
READ ENTIRE REPORT: Q2_19_Mpls-St_Paul_Office_Market_Report