Minneapolis Office Market
After absorption moderated in late 2023 and early 2024, the market experienced an increase in negative absorption, totaling 496,134 square feet in the 2nd quarter. This was largely due to US Bank vacating 340,000 square feet at Meridian Crossings in Richfield. Leasing activity slowed to 886,793 square feet in the 2nd quarter, down from an average of 1.6 million square feet per quarter during the previous five quarters. Most companies are reducing the amount of space they occupy but are making longer-term decisions by either committing to new office spaces or renewing for longer terms. Tenants have greater clarity in their hybrid work strategies, with increasing confidence that remote work levels have stabilized. Companies continue to mandate a specific number of in-office workdays rather than merely encouraging them. Amidst significant declines in office space utilization, the Minneapolis market continues to see employment declines in sectors depending on office spaces. Information, financial activities and professional and business services have experienced ongoing declines.
Download Minneapolis Office Market Report 2Q24Minneapolis Industrial Market
The vacancy rate increased slightly to 5.3% in 2Q24 from 5.0% in 1Q23. Construction activity peaked in 2023 and is tapering, limiting future vacancy increases as absorption slows. Absorption slowed to 228,024 SF after 932,078 SF was absorbed in 1Q24. Asking rents increased to $8.76, up from $8.61 in 1Q24. Rates surged by 11.7% in 2023, building on 2022’s growth rate of 9.2%. Industrial average asking rents grew by 27.1% since 2020, and rates for both new construction and second-generation space will continue to increase. Data suggests a slower growth rate overall for 2024. Absorption began to decelerate in the last half of the year, with YTD 2Q24 absorption of just under 1.2 MSF and 2023 absorption of 4.2 MSF, compared to 6.0 MSF in 2022. There is currently over 3.2 MSF under construction including the 557,000 SF FedEx Ground Distribution Center in Rosemount. Construction is decelerating, and outside of buildings currently under construction, there are minimal speculative deliveries planned for 2024 and few new buildings are expected to be completed in 2024, except for occasional build to suit projects. Growing sublease availabilities and substantial speculative development in recent quarters are expanding choices for tenants. Despite some slowdown in leasing activity, demand remains steady and coupled with limited speculative deliveries, vacancy hikes will be constrained. Sales and leasing activity remain robust; we expect an uptick in sale activity through the second half of 2024, driven by an expected decrease in federal interest rates in Q3. Landlords are confident and optimistic, especially those anticipating longer hold periods. Tenants anticipating a shift from a landlord’s market to a tenant’s market will be disappointed.
Download Minneapolis Industrial Market Report 2Q24 Download Minneapolis Office Market Trends 2Q20