Downtown Minneapolis sees office-to-residential conversions
Downtown Minneapolis is quietly going through a major shift to adapt to a future that includes a lot more remote work.
What's happening: Old, tired office buildings are being converted into apartments or demolished, while developers keep building new, high-priced office space.
Between the lines: The trend shows that corporate employers may need less office space, but they want it to be high class.
Why it matters: The residential conversion/new office lifecycle has led to a pipeline of over more than $1 billion worth of new downtown development.
Driving the news: This week, Minneapolis developer Sherman Associates announced it would spend $400 million to demolish an old, squat former Wells Fargo office building on Washington Ave. and replace it with a three-tower redevelopment with apartments, restaurants and office space.
- Paired with the company's conversion of the former Northstar East office building to apartments, Sherman is removing nearly 1 million square feet of unwanted office space that has been a drag on downtown's office market.
What they're saying: Company president Chris Sherman told Axios that its downtown apartment portfolio — it owns hundreds of units — went from 96% occupied before the pandemic to 80% in early 2021 as downtown employees no longer felt the need to live close to their offices. Sherman was offering two free months of rent to fill up its buildings back then.
- Sherman's buildings are now back to 96% occupied and it's no longer being so generous with rent deals, he said.
Flashback: Predictions in early 2021 that downtown would lose many of its office tenants to the suburbs have been almost completely wrong.
- One mid-size company left the city, but that loss of employees has been more than backfilled by fintech company Deluxe Corp. and Prudential, both of which moved to Minneapolis from the suburbs.
- "Employers, especially the big ones, need to be somewhere where people can take public transportation because not everybody has a car," said Deb Kolar, general manager of IDS Center, which has seen strong return-to-office numbers in its tower.
Yes, but: Crime remains heightened in downtown Minneapolis, and even though the city has managed to hold onto its big companies, their employees have hybrid work models in which they spend less time downtown. Adding to the residential population helps make up for the loss of workers.
What to watch: Downtown real estate types are awaiting a decision by Piper Sandler (formerly Piper Jaffray) on whether or not it will stay downtown or move to the suburbs. It has a soon-expiring lease on Nicollet Mall.
- Piper Sandler did not respond to an email from Axios requesting comment.
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