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MID-YEAR 2020 OFFICE MARKET UPDATE

Office Market Update

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. 
IN CONCLUSION
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

MNCAR: Q1-2020 Office Market Report

Q1-2020 Office Market Vacancy Trend Graph

Q1-2020 Office Market Report

Economic Overview

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.

Market Overview

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.

Market Highlights

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

Employment: up 1,969,253
Area Unemployment: down 3.1
U.S. Unemployment: down 3.5
Office Jobs: down 516,60

Market Recap

Total Inventory: 126,158,494 sf
Absorption: (133,000)
Vacancy: 12%
Asking Rate: $24.59
New Construction: 2,895,944 sf

READ ENTIRE: Q1-2020 OFFICE MARKET REPORT
Written by: MNCAR/Redi Comps

MNCAR Office Market Trends | Q2-2019 | Minneapolis-St. Paul

Written By: MNCAR/Redi Comps
Economic Overview
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.

Market Overview
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.
Market Highlights
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
 

NAIOP Office Space Demand Forecast

New Report by the Research Foundation
Office Space Demand Forecast:
Second Quarter 2016
Key report findings:

The national office market is forecast to absorb approximately 34.6 million square feet of space in 2016, down from 62.1 million square feet in 2015, as economic growth flattens in the U.S.
GDP growth, which slowed to 0.5 percent in the first quarter of 2016, is forecast to remain low, near 1 to 2 percent annualized growth, with the lower boundary of the GDP forecast dipping into slightly negative territory.
The current forecast projects net absorption of office space to regain some strength in 2017, totaling approximately 46.2 million square feet. However, this figure could change, depending on how the economy fares throughout the rest of 2016.

 
Economic Flattening Points to Declining Demand for U.S. Office Space Through 2017 

The national office market is forecast to absorb approximately 34.6 million square feet of space in 2016, down from 62.1 million square feet in 2015, as economic growth flattens in the U.S., according to Dr. Hany Guirguis, Manhattan College, and Dr. Joshua Harris, University of Central Florida. Gross domestic product (GDP) growth, which slowed to 0.5 percent in the first quarter of 2016, is forecast by the model to remain low, near 1 to 2 percent annualized growth, with the lower boundary of the GDP forecast dipping into slightly negative territory. The current forecast projects net absorption of office space to regain some strength in 2017, totaling approximately 46.2 million square feet. However, this figure could change, depending on how the economy fares throughout the rest of 2016.
“Employment, both overall and in the office-using sectors, had maintained fairly steady growth until the most recent reading for April 2016, which registered only 160,000 net new jobs. This was well below the 200,000 jobs-per month threshold considered the minimum necessary for sustained economic growth,” says Harris.  “We expect the overall declines in macroeconomic output to continue to result in lower employment gains for the rest of 2016.
Read more:  Office Space Demand 2Q16
By: Dr. Joshua Harris, University of Central Florida and Dr. Hany Guirguis, Manhattan College