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Q1 2021 Office Market Update

Q1-2021 Office Market Update - Post Heading Image

Q1 2021 Office Market Update
The office market continues to struggle reflecting the negative impact of the pandemic on overall leasing activity and occupancy levels.  Even with loosening restrictions, working from home is expected to continue for many.  As leases expire, the market anticipates that  businesses will dial down their footprint and flexible office spaces will become the norm.
Corporate Culture
A major change is happening in the way many corporations are providing space to their employees, a variety of furniture options provide flexibility to work as needed, many not being assigned a specific space to an individual.  Rather, depending on the type of work required on any given day, staff can choose from a variety of options that may include:

benching
typical work stations
conference areas
collaborative areas
small “focus” rooms

or many other furniture based solutions.  Combined with a continued work from home option, employees will have options.  Employers have witnessed good levels of productivity during this work from home experience and that option will likely continue.  The question many have, is how do we create and drive a desired corporate culture when much of the staff is not physically present on a daily basis.  How to train and develop new hires remains a hot topic.
Rate Comparison
Unemployment increased slightly in February 2021 from January 2021 by .01% to 4.4%.  The Year over Year increase of 1.3% was not surprising taking into account government restrictions on travel/hospitality and entertainment.
The overall office market experienced (963,593) square feet of negative absorption (space given back ending Q1 with a total market vacancy rate of 13.8%.  Focusing on multi-tenant properties only, the overall vacancy rate was 18.2%, more than 5 points up from year end 2020.   St Paul CBD, Northeast and Southwest submarkets were nearly equal in leasing activity for the quarter at 180,000 SF each. Overall quoted gross rental rates are averaging $25.02/PSF.
Total sales volume for Q1 was nearly 4 million square feet. With investors snapping up property quickly.  Low interest rates keep interest levels high but low inventory continues to limit options.
Commute times are increasing as roads start to resemble pre pandemic levels.  It is not clear when mass transit usage will return as the risk of exposure continues and mask requirements vary.  Many are venturing out and at least for now, it seems that many are ready to put the last year behind them and look for ways to feel some sense of normalcy.
Written by: Nancy Powell, Vice President | Office Sales and Leasing

Moving Beyond the Deal. Why it Matters.

Moving Beyond the Deal.

Moving Beyond the Deal. Why it Matters.
Throughout our many years of leasing office and industrial space, we have learned how important it is to pay attention to the details.  One of our recent clients was on a short time frame to move into new office space.  We were close to finalizing the terms of the lease.  The architect finished the space plan and construction specification.  Everything seemed to be on track, right?  Wrong.  The construction specification called for expensive changes to the ceiling grid that would have resulted in lower quality space.  This is one of the many turning points that cause delays and cost overruns when leasing new office space.
At this point in the process, who will take the initiative to review the space plan, construction specification, and match both to the existing conditions in the new office?  We will.  And we will coordinate the architect, contractor, and building management to make sure the plan is right before its too late.  This role is sometimes filled by a project manager.  However, in smaller lease transactions there may not be a need, or desire on behalf of the client, to hire a separate project manager to review the details of the buildout and keep it on track.
When leasing new space, be sure that your real estate professional is tracking the details.  This will ensure that your project will stay on schedule and on budget.  It does matter.
Written By: John Young, CCIM

Q3 2020: OFFICE MARKET UPDATE

Q3 2020: OFFICE MARKET UPDATE
         
Economic Overview
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.
Market Overview
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.
Market Highlights
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.
Methodology
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)

SANTAMARIA ENTERPRISES EXECUTES 1031 EXCHANGE

SANTAMARIA ENTERPRISES EXECUTES 1031 EXCHANGE

Congratulations to Santamaria Enterprises & Paramount’s West Team for the purchase and closing of The Cliff Town Offices!
THE BUILDING
2805 Cliff Road or The Cliff Town Offices is a ½ acre, 8,420 SF multi-tenant office building.  It is class B space consisting of 3 floors and built in 2004.
THE DEAL
Paramount Real Estate broker, Jeffrey Swanson helped his client, Santamaria Enterprises,  purchase this fully leased investment property as part of a 1031 exchange for the price of $1,100,000.00.  The property closed on July 20, 2020 and Jeff will stay on to help with any leasing needs the asset will have in the future. Currently we have two newly renovated, 1,200 square foot suites available for lease.
For more details about the spaces available: Cliff Town Offices For Lease
CLIENT HISTORY
Santamaria Enterprises recently sold a building in Minneapolis that included a night club owned by the landlord.  The profits from this sale were rolled into this 1031 exchange, and were used to purchase the 2805 Cliff Road building.  Paramount also represented them in leasing space in Richfield, MN.  They use this space to operate their Latino radio station, La Raza.  Tune in and enjoy the show on 95.7 FM!

EDEN PRAIRIE INDUSTRIAL BUILDING SOLD

EDEN PRAIRIE INDUSTRIAL BUILDING SOLD
Paramount Real Estate Corp | TCN Worldwide is very pleased to announce the Sale of 6450 Carlson Drive | Eden Prairie, MN

HISTORY OF THE PROPERTY
6450 Carlson Drive is a 42,760 multi-tenant office-warehouse building located off Highway 62 and Interstate 494.  The Eden Prairie industrial building situated on 3.97 acres, was built in 1986.  When a long term tenant vacated the majority of the building, Paramount was engaged to market the property.  Initially they marketed it as a 36,885 square foot vacancy For Lease.

PARAMOUNT’S CLIENT & THE DEAL
Bloomington-based Paramount Real Estate Corporation brokers, Jeffrey Swanson, Associate and Fred Hedberg, President represented the seller in this transaction.  FHM Partners, the sellers, consist of a local managing partner and two out of state passive owners.
“This Eden Prairie industrial building was on the market For Lease.  We were in the midst of negotiating a 10-year lease for the building’s vacant space.  This is when a user/buyer made an unsolicited offer to purchase the building.  Paramount advised FHM Partners on the pros and cons of each opportunity.  The partners decided that it was in their best interest to sell.  The transaction moved forward quickly with only a slight delay due to a change in financing that pushed the closing out 10 extra days,” commented Jeff Swanson.

THE NEW OWNER
BLCKGLD, LLC, a Minnesota owned LLC, is the entity that recently purchased this office-warehouse building at 6450 Carlson Drive.  With their upcoming expansion, a company with common ownership to BLCKGLD, LLC plans to remodel and occupy the entire building.

In conclusion, Paramount congratulates the West Team for closing on this deal! 

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

TWIN CITIES MARKET SNAPSHOT

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 Market



 
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.

Office Market

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.

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

Office Market Trends – MNCAR | Q2-2019 | Minneapolis-St. Paul
Economic Overview
According to the Bureau of Labor Statistics (BLS), the unemployment rate for the office market in 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
Written By: MNCAR/Redi Comps

Powell Represents OffiCenters in Lease Renewal at North Loop

OffiCenters in Lease Renewal

Press Release | Powell Represents OffiCenters in Lease Renewal at North Loop
MINNEAPOLIS, MN.  Nancy Powell, Vice President at Paramount recently assisted our long-term client, OffiCenters in a lease renewal at their North Loop location in Minneapolis.  Lori, the founder and CEO of the locally held co-working and executive office sharing solutions corporation, is not daunted by the influx of co-working competitors, in fact she says “bring it on!”  For 35 years they have brought office sharing solutions to Minneapolis and St. Paul.
With 5 locations, OffiCenters offers nearly 100,000 square feet of office space solutions.  They focus on the needs of their customer, OffiCenters is not afraid to relocate to find the right space solution.  In fact in the past few years, Nancy has assisted them in relocating three of their centers.
NEW LOCATION: Union Plaza OffiCenter: 333 Washington Avenue N, Suite 300, Minneapolis MN