New data show that businesses are fleeing downtown Minneapolis
Back in November, Jonathan Weinhagen, president and CEO of the Minneapolis Regional Chamber, wrote an op-ed for the Star Tribune titled “Business has nothing to fear from DFL dominance.” His members clearly didn’t get the memo.
Two weeks ago, Axios reported:
CBRE, one of the largest commercial real estate companies in the country, is closing its downtown Minneapolis office.
Details: CBRE had about 200 employees when it opened an office in LaSalle Plaza in 2016. The company said it is not renewing its lease.
Downtown employees are moving to the Bloomington and North Loop offices.
Between the lines: CBRE was part of a big migration of companies from the suburbs to downtown Minneapolis in the 2010s.
While the city hasn’t seen a mass exodus of companies that some predicted during the pandemic, the move isn’t a good sign.
CBRE said in a statement the departure from LaSalle Plaza is a temporary consolidation while it evaluates its long-term space needs.
A couple of days later, Axios reported:
Portico Benefit Services is leaving downtown Minneapolis and relocating to Edina.
The details: Sources tell Axios that Portico, a benefits provider for employees of the Evangelical Lutheran Church of America, is leaving 60,000 square feet in RSM Plaza on Nicollet Mall.
Portico is leasing 25,000 square feet in the 7700 France building, which recently underwent a major renovation. The size difference in the two leases is further proof that companies need less space in a post-pandemic world.
“We found an alternative location that will allow for additional flexibility as we move to a more agile, hybrid work environment for the future,” Portico CFO/COO Stacy Kruse said in an emailed statement.
Context: Portico is the first sizable company to leave downtown for the suburbs since TCF Financial departed in 2015 for Plymouth.
It’s not clear exactly how many employees Portico has downtown, but the number is likely in the hundreds based on the space.
What we don’t know: Exactly why Portico made the decision, other than that its lease was up.
One week ago, Axios reported:
AT&T is closing its longtime downtown Minneapolis office and moving hundreds of employees to its Bloomington facility.
Why it matters: It’s the end of an era as the telecommunications company once had a massive downtown regional office and naming rights to its building — AT&T Tower at 901 Marquette Ave.
What they’re saying: AT&T confirmed the move will be complete by the end of August. It didn’t give a reason or total number of jobs affected, but spokesperson Clay Owen wrote to Axios that “these jobs will remain in the greater Minneapolis area, and we remain committed to Minnesota.”
Details: The Minneapolis office is home to 260 workers…
If you thought these were mere anecdotes, last week Twin Cities Business reported:
With over 21.2 million square feet of vacant office space in the Twin Cities metro, office vacancy rates in the area are up 12.2% year over year, according to a recent report by Toronto-based Colliers International.
The Minneapolis and St. Paul office market has continued to show a “negative absorption” rate in the first quarter of this year. This simply means the demand for office space is lower than the supply available. The report points to properties like Voya, Calabrio, and WeWork, which have all vacated or downsized leased spaces, leaving around 100,000 square feet each in their buildings. The Twin Cities is one of only three major markets that continue to post negative absorption rates every quarter since the pandemic started, the other two being Baltimore and Chicago.
The Minneapolis central business district (CBD) alone saw a negative absorption of 300,000 square feet, the largest negative absorption in the region. In total, the Twin Cities metro reported more than 500,000 square feet of negative absorption in the first quarter. However, the I-494 Corridor and outlying submarkets both saw overall positive absorption, with tenants filling Class A space in the I-494 and I-394 Corridors faster than any other submarket, according to the report.
In short, businesses are fleeing downtown for the suburbs. With all due respect, Baltimore and Chicago is not company you want to be in.
Intriguingly, the Colliers report looks into the “adaptive reuse of office buildings into industrial and multi-family buildings,” but notes that:
…without government incentives, the major determining factors for such conversions are the amount of leasable square footage on an individual floor of a building, as well as location and price…
“Government incentives can themselves become strong components to kick-start adaptive reuse and make possible otherwise impossible conversions,” the report states. “As more obsolete office buildings are considered for adaptive reuse, potential long-term ramifications will emerge as to how housing will reshape the neighborhood and shift the city’s property tax basis.”
Minneapolis can, then, replace these lost business tenants with subsidized renters and have them make up for the resulting tax loss. Minneapolis has had DFL mayors ever since Charlie Stenvig back in 1979.