Office leasing deals in the Twin Cities are picking back up, report says

Office leasing activity rebounded to pre-pandemic levels in the first quarter this year, but other measurements indicate the market has yet to fully recover.

Almost 1.3 million square feet in deals were signed in the first quarter this year, an amount not seen since early 2020. Still, the amount of space that tenants vacated was larger than the amount of space that tenants began occupying in the first quarter, according to a new report from JLL.

This heightened leasing activity can likely be attributed to major corporate tenants returning to in-person work. Many corporate renters of office space reached a point last quarter where they needed to decide how and when their staff would return to in-person work. This decision oftentimes involved considerations of office use, said JLL Research Director Sam Newberg.

“I think everybody is collectively saying, … ‘It's been two years. We need to move forward and we need to get people back in the office,’ ” JLL Managing Director Brent Robertson said.

The JLL report cites two newly signed leases that drove last quarter's activity: Old National Bank signed a lease for over 19,000 square feet at 10 West End, and Delta Air Lines Inc. is leasing almost 80,000 square feet at Normandale Lakes Office Park.

Adam Barrett, vice president with Colliers International’s Minneapolis office who's focused on downtown, also saw an influx in leasing activity last quarter. Specifically, activity has been centered around tenants gravitating to high-quality, flexible spaces, he said.

An office report from Colliers’ Minneapolis team found office quality was a significant factor in first quarter’s leasing activity. The report cites RBC Gateway as an example of this because it opened fully leased, the report said.

“Businesses are trying to entice workers, not only current workers, but potential workers to their space,” Barrett said.

This is evident in JLL's report, as well. The vacancy rate of Class A leasing last quarter (16.8%) was below the overall average of 19.3%, the report said.

“It's not flight to quality or flight to higher quality, it’s flight to highest quality — only the best building [tenants] can afford,” Robertson said.

Even with heightened activity last quarter, the JLL report found that absorption — or the sum of square feet that became occupied minus the sum of square feet that became vacant — was negative last quarter in the Twin Cities.

With companies rethinking their office needs, both reports found the amount of available subleases increased last quarter. JLL reports the available sublease space reached nearly 3.5 million square feet, almost 4% of the entire office market. This includes Target’s 885,000-square-foot City Center sublease hitting the market.

Companies have listed space for sublease after deciding they don't need it once hybrid work models are implemented, Robertson said.

Looking to the future of Twin Cities office, Barrett expects leasing figures to continue rising.

“They're ready to get back to the office,” he said. “I think that we're going to continue to gain momentum, and I think that's going to continue throughout the year.”