Office pain extends to Twin Cities suburbs
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The unplowed parking lot of the Southgate Business Plaza in Bloomington. Photo: Nick Halter/Axios
A move from companies toward more remote and hybrid work isn't just dealing a blow to the downtowns, it's also hitting the suburbs.
Driving the news: Last week, Thomson Reuters announced it's exploring options for its massive Eagan campus because it no longer needs all 1.3 million square feet of office space as it moves to a hybrid work model.
Why it matters: Suburbs depend on office buildings to bolster their tax base and nearby restaurants and retailers draw business from office workers.
Zoom in: The south metro is struggling the most, according to a third quarter Cushman & Wakefield market report.
- The area's vacancy rate has risen to 28.3%, which is above the broader Twin Cities metro average of 23.3% and also above Minneapolis and St. Paul's rates of 26.9% and 24.5%, respectively.
- Prime Therapeutics shed its Bloomington space — 180,000 square feet — when it adopted a hybrid model in a new, consolidated Eagan building.
- Bloomington's Southgate Business Plaza has apparently closed and its owners have emptied the aging office building of tenants, per the Minneapolis/St. Paul Business Journal.
What they're saying: "Every office market — whether it's the suburbs, downtown Minneapolis or Detroit — all of them have shrunk and taken a step in," said John McCarthy, a local broker and senior vice president at Colliers International.
Yes, but: Not all suburban office properties are struggling.
- The west metro, for example, has an 18% vacancy rate and a new building at St. Louis Park's West End by Ryan Cos. and The Excelsior Group quickly filled up during the pandemic.
The intrigue: The trend could change the look of suburban communities.
- Aging suburban office buildings might not be in high demand, but the land they sit on still is, McCarthy said. They could be replaced or repurposed as residential or industrial buildings.
- "You look at some old pictures of Minneapolis, it used to be red brick buildings. Those were all torn down for skyscrapers. So it's not the first time that this kind of thing has happened," McCarthy said.