Twin Cities ranks with leaders in office-to-apartment flips

Minneapolis and St. Paul are among the cities converting offices to apartments fastest, and a new report suggests the trend will continue.

Why it matters: Cities across the nation with fewer commuters and shuttered businesses are scrambling to revitalize downtowns in a post-pandemic world.

• From Minneapolis' Northstar Center East to St. Paul's Landmark Towers, we've told you about some of the local conversions in the works.

Driving the news: The push comes as downtown Minneapolis foot traffic is at 39.8% of pre-pandemic 2019 levels, Axios' Alex Fitzpatrick and Kavya Beheraj report.

• The Twin Cities' office vacancy rate has already reached 25%, making more space available for conversions. A recent report by CoStar said vacancies could rise even higher as more than half of the office leases nationally signed before the pandemic are yet to expire.

The big picture: The national pipeline for office conversions is hot, even as those flips slowed from their record high in 2020.

• In Minneapolis and St. Paul, 456 apartments were converted from other building types in 2022, per the report by RentCafe, which analyzed data from commercial real estate intelligence service Yardi Matrix.
• Together, the cities made up roughly 4.5% of what real estate experts call "adaptive reuse" projects nationwide. Minneapolis ranked eighth and St. Paul 24th.
• Across the country, more than 10,000 apartments were retrofitted last year, the data shows.

Zoom in: Minneapolis Mayor Jacob Frey has backed these types of projects, but real estate experts told Axios the cost of converting the towers can be too expensive without government help.

What they're saying: Developers are continually "identifying the new highest and best use," for buildings, says Chris Sherman, president of Minneapolis-based Sherman Associates, which plans to convert the Northstar Center East and Landmark office space.

• In the Twin Cities' core downtowns, office demand has seen the steepest decline while housing demand has stayed strong, Sherman tells Axios.

Between the lines: Post-pandemic vacancies aren't just a downtown problem. Office revamps are also happening in Twin Cities suburbs, the Star Tribune reports.

What's next: The trend is poised to grow as more cities roll out programs to incentivize conversion projects, according to Steven Paynter at Gensler, a global design and architecture firm.