MINNEAPOLIS—The office market in this city has continued to soar even after putting together several very strong years, according to JLL's Spring 2015 Minneapolis Skyline Review, its study of the top downtown office properties. However, the firm's researchers also note that a strong discrepancy has developed between the top trophy properties and the other class A and B buildings.
“While total vacancy in the 15 non-trophy assets is slightly north of 16%, total vacancy remains slightly less than 10% for the eight trophy assets,” the firm found. Rental rates have also separated in the last few years. Since 2012, average gross asking rates in the downtown's non-trophy assets grew by 3.8%, but the top trophies saw 9.4% growth and now command an average gross rent premium of more than $6.00 per square foot.
The 23 Minneapolis properties include the 1.1 million square-foot 33 South Sixth, a 50-story trophy asset with 98.8% occupancy and the 871,232 square-foot 901 Third Avenue, a class A building that is about 30% vacant. JLL defines this city's Skyline as the trophy, class A and class B buildings with more than 250,000 square feet and at least ten stories. Furthermore, each must have been built or significantly renovated since 1985, or have a high-profile location, a recognized tenant profile, or have architectural significance.
Investment activity declined in 2014, although considering the vast amount of money that changed hands in 2012 and 2013, this was not a surprise. “Only three Skyline properties were sold between 2014 and the first quarter of 2015,” JLL notes.
That's a big change from 2013, when major office properties traded at a pace not seen since before the recession. For example, Florida-based Beacon Investment Properties LLC bought the iconic 1.2 million square-foot IDS Center for $253 million. Other major sales included the Oracle Centre, a 20-story building at 900 Second Ave. South, which was sold to a joint venture between Investcorp International and Wildamere Properties, and the 40-story RBC Plaza.
Still, “favorable yields, low unemployment, and a growing downtown population, continues to fuel strong investor demand from existing owners looking to expand their portfolio and new capital to the market,” JLL adds.
And the only Skyline sale in 2014 did produce a record-sale price for the region on a per-square-foot basis. The Hamburg, Germany-based investor Union Investment Real Estate purchased 50 South Tenth, formerly known as the Retek Building, for $330 per square foot.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
