Any level of positive absorption is a strong indicator of returning demand--particularly following a two-year period of negative 2.7 million sf of office absorption, according to the Bloomington-based commercial real estate firm. The office market posted its first declining vacancy rates since 1997 with year-end 2004 levels of 18.3% direct vacancy or 20.7% vacancy with subleased space included, compared to year-end 2003 vacancy rates of 18.9% or 21.6% with subleased space.

Four of seven Twin Cities office submarkets reported declines in direct and sublease vacancy numbers during the second half of 2004, further signaling a broad-based recovery in demand. Only the Minneapolis and St. Paul central business districts reported year-end 2004 vacancy rates above 20%. The Northeast office submarket reported the lowest vacancy rate at 14%.

"The amount of office sublease space declined more than 10% over the last year, and office users are beginning to fill excess space in their current locations," says John McCarthy, vice president of office brokerage at United Properties. McCarthy anticipates companies will begin leasing new space for growth. "The increased activity level we began to experience this year could translate into nearly one million sf of absorption in 2005."