About 340,000 sf of retail space was converted to office space, says Jim Miller, a St. Paul-based commercial real estate broker and consultant. Miller presented his report on the St. Paul office market Monday to a meeting of the St. Paul Building Owners & Managers Assn., which sponsored the report.
Between them, the new owners at the World Trade Center and Galtier Plaza have converted 256,000 sf of retail space to office space last year. Combined with the opening of Lawson Commons and several smaller conversions, the new office space had a role in pushing up the vacancy rate in Downtown St. Paul to 5.5% from 4.5% a year ago. That rising vacancy came despite the fact that the market absorbed more than 518,000 sf of space last year, the most in five years or more.
Among buildings that compete for tenants--about 60% of the overall market--the vacancy rate is 9.1%, the report concludes. That space now includes Minnesota Life's headquarters building at 400 N. Robert St., formerly counted as "owner-occupied." The life insurance company is offering seven floors for lease as it gets ready to move some of its operations to its new building at 401 N. Robert.
The report noted that there is 343,000 sf of office space in 17 buildings available for sublease on the market. If that space were added to vacant space, the vacancy rate on the competitive market would go up to 12.7%, the report said. Perhaps reflecting the rising vacancy rate is declining rents, which dropped 4 percent to $24.74 per sf for class A buildings. Class B rates were up 0.5% to $18.66 per sf, while class C rates were up 15% to $14.95 per sf.
The rapid conversion of retail to office space--Town Square also converted much of its retail space in the same way several years ago--raises questions about the viability of the Downtown retail market, Miller says.
The report said that the office market in St. Paul last year grew by nearly 10% to 15.6 million sf. As new buildings opened like Lawson Commons, retail was converted to office and the state of Minnesota re-measured its space.
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