The Next Major Office Building

Potential sites for a new tower range from the old Skyway Theater site on Hennepin Avenue to a parcel at Ninth Street and Second Avenue to the space on Nicollet Mall across from the new library.

However, despite the prospects for downtown, LaFavre calls the current market a “head scratcher” and cause for some concern. Historically a vibrant area, the Twin Cities has yet to experience the kind of post-2000 real estate recovery that cities like Charlotte, Nashville, or Washington, D.C., have enjoyed. Non-farm employment has grown little here over the past six years, he says, and the industrial sector has been slowed by manufacturing jobs moving out of state. “If you look at employment in service companies that typically fill up office space, our research shows we have still yet to return to the levels experienced in 2000,” LaFavre says. “That surprises me, because I am used to a more robust Twin Cities.”

The good news is that Colliers’ research shows strong first-quarter office absorption in the metro, with 445,000 square feet absorbed. “As a yardstick, we experienced about 1,450,000 square feet of total office absorption in 2005 in the Twin Cities, so to start out the first quarter that way is a good sign,” LaFavre says.

The suburbs were first to enter the recession following the dot-com bust of 2000, LaFarve says, and have been first to emerge from it. Class A vacancy rates were below 10 percent in suburban markets this past spring, according to research from United Properties, a real estate services firm located in Bloomington. “Historically there has been about a two-year lag between recovery of the suburbs and downtown, and we are seeing that in the southwest,” LaFavre says.

In fact, the southwest market has become a development hot-bed. Already under construction are Norman Pointe II, a 322,000-square-foot speculative tower along Highway 494 in Bloomington from Duke Realty that will  be ready for tenants this fall; a 280,000-square-foot building next door in the Normandale Lake Office park from United Properties that is almost half leased; and a new 56,000-square-foot “green” office building in Eden Prairie from Liberty Property Trust.

Although LaFarve says there isn’t yet a lot of depth to this suburban development, he believes that could change quickly given a number of promising proposals in the pipeline. He also says some users are resisting the higher rents of new space “until they absolutely have to deal with it. There is a significant bump from the current rates to those new rates.”