The Next Major Office Building

However, Class A space is doing better in the suburbs than Class B and C buildings. “They are at risk both in the suburbs and in the central business district,” says Tom Shaver, vice president of real estate development for Opus Northwest, a development firm in Minnetonka. “We haven’t had any new development in those categories on a speculative basis for eight years.”

Shaver says another factor influencing suburban office development is the growing challenge of navigating city entitlements and the governmental approval process, including zoning, development agreements, approval timelines, and analysis of how developments will affect traffic patterns on congested roadways. “We have been spending a tremendous amount of time explaining and proving up the traffic components for some of our projects,” he says.

When the new wave of Class A, multi-story office development does arrive, many believe the western suburbs will be a main beneficiary. “I think the next market where you will start to see more growth after the southwest will be the west sector from Minnetonka north to Maple Grove,” LaFavre says. The area along 35W from Roseville into Arden Hills may also be ripe for new office space, he says. “That stretch has stayed relatively strong of late.”

Mascia has been seeing smaller scale office development—three- to five-story buildings—in southeast markets such as Eagan and in the northwest.

Leaving Space Behind

Another looming issue affecting the office market is new corporate campuses under construction by Medtronic in Mounds View, Select Comfort in Plymouth, Cargill in Hopkins, and UnitedHealth Group in Minnetonka. Those projects account for 2.5 million square feet of new construction, says Shaver of Opus, developer of all four sites.

Although some of those companies will keep existing space to accommodate rapid growth, they will leave the old space vacant as a result of the moves, which has potential to soften the market. For example, Shaver says Cargill will vacate a portion of space in its building at 494 and Crosstown for its move to the new campus at Excelsior Crossings.

“The Cargill give back of space could prove significant as they move to their new building,” says Bill Rothstein, a vice president for United Properties. The move could leave a large amount of open space in the market and drive up vacancy rates in the area.