Oct 20, 2023 - Real Estate

The Twin Cities may not see another new office tower for a long time

Two towers in a rendering

The black office tower on the right of this rendering could be the last new office building in the Twin Cities for a while. Image by ESG Architecture via the City of Minneapolis

An 18-story tower under construction near Target Field could be the last new office building we see in the Twin Cities for a long time.

Why it matters: Office buildings are huge property taxpayers, injecting millions into schools, public safety, and social services. Building them also keeps construction workers on the job.

State of play: The permanency of remote and hybrid work continues to take a toll on the office market as companies downsize their space needs.

  • The vacancy rate for office buildings in the Twin Cities this fall reached 21%, up from 14% in 2020, according to a report by commercial real estate firm JLL.
  • The report says there's roughly 20 million square feet of vacant office space in the Twin Cities, which is a big reason why developers aren't rushing to build.

Zoom in: The tower next to Target Field, called North Loop Green, is the only large office project to have broken ground in the Twin Cities since the pandemic hit.

  • It's a success story. It won't open until the first half of next year, but two-thirds of the tower's 355,000 square feet is already leased, with investment firm Piper Sandler signing on as the anchor tenant.

Between the lines: Real estate experts point to North Loop Green as an example of "flight to quality." Even with 20 million square feet of office space available, plenty of deep-pocketed companies want to move into the newest, high-quality space.

Yes, but: Rising interest rates and construction costs remain a major hurdle, even if there's demand for new space. JLL's Andrea Leon said there are proposed office projects that have gotten commitments from tenants, only to see their investors back out.

  • "I think it's going to be a while until the markets stabilize."

What we're watching: There are three potential large-scale office projects that developers have been trying to kick off for years.

  • Houston-based Hines, the same developer that is building North Loop Green, started marketing a 29-story tower in downtown Minneapolis at 9th and Marquette, nearly three years ago.
  • A year ago, Ryan Cos. proposed a second phase of 10 West End, the new office building in St. Louis Park that opened during the pandemic and quickly filled up with tenants.
  • Mortenson and Orion Investments have been trying to kick off a midsize office building at 70th and France in Edina for nearly three years.

What they're saying: Representatives for both Hines and Ryan told Axios that they continue to market their projects and remain bullish on them, but did not give any timeline or leasing update. Mortenson could not be reached for comment.

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