Minneapolis continues to lure suburban jobs to downtown, report says

Downtown Minneapolis continues to lure companies from the suburbs.

That’s according to research by CBRE Minneapolis, which tracked in-migration and out-migration of office tenants in downtown and the North Loop. In total, downtown and the North Loop have enjoyed a net gain of 1.4 million square feet of office tenants in the past six years, which has helped the market absorb space left behind by Wells Fargo’s consolidation to a new campus in Downtown East. 

CBRE said downtown Minneapolis gained more than 1 million square feet of new office tenants while losing about 200,000 square feet, for a net gain of 800,000 square feet. The North Loop gained 660,000 square feet of tenants and lost around 80,000 square feet, for a net migration of 581,600 square feet. 

CBRE Senior Vice President Brandon Megal, who represents office tenants, said companies have increasingly become willing to pay extra to get access to downtown’s amenities. 

“The ability to access transit and the amenity package downtown is more and more attractive to retaining and recruiting talent, especially young talent,” Megal said. 

The CBRE research mirrors what the Business Journal reported in 2016 — a wave of migration from the suburbs. It also shows that the migration has continued since then. In the past two years, Minneapolis has gained another 300,000 square feet. 

CBRE found that the suburbs lost the most tenants to downtown Minneapolis. Ten tenants from the Interstate 394 submarket moved to downtown Minneapolis and leased 331,600 square feet. Twelve tenants from the Interstate 494 submarket moved downtown and leased 260,000 square feet. 

That trend has caused suburban landlords to step up their game, said Steve Shepherd, a broker who represents several suburban landlords in the west metro. 

“Our large tenants are taking a look downtown. Many aren’t willing to move there because of all the inconveniences and added costs, particularly with parking and taxes,” Shepherd said. “But they sure like the downtown amenities, and they are coming back to us and saying, ‘I really like that fitness center and cafeteria — all the things I looked at in the downtown building.’ ”

Shepherd does leasing at Southpoint Office Center in Bloomington, where landlord Felton Properties just spent $2 million to add a full-service fitness center with classes and personal training, plus a new cafeteria with exposed ceilings and contemporary finishes. 

“We’ve put over $2 million into that update with the intent of not only keeping our tenants, but attracting some of those users that may only be looking at a couple suburban options and still want that downtown amenity package and finish level,” he said. 

Some of the suburbs’ biggest losses in the past two years have been Sleep Number Corp., which moved in 2017 from Plymouth to 211,000 square feet in the 1001 Third Ave. building.

This year, hearing aid company Amplifon also left Plymouth for 40,000 square feet in Fifth Street Towers. That brought 180 jobs downtown. Country Financial left Arden Hills last year and moved 130 employees into 29,000 square feet, also in Fifth Street Towers. 

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Anthony Gilbert

Minnetonka-based UnitedHealth Group Inc. chose to put its fast-growing Rally Health company in downtown Minneapolis, taking 40,000 square feet in the new Millwright building.

The downtown Minneapolis office vacancy rate is 21.5 percent, according to CBRE’s first-quarter office report. The North Loop’s vacancy rate is 13.9 percent. The overall metro vacancy rate is 18.3 percent.

Shepherd expects the trend to continue, but perhaps not at the same pace it has. He expects that as millennials age, they'll prioritize the convenience of having a car to pick up sick kids or make it to sporting events and concerts.

"I think there will be a pendulum swinging at some point, but I don’t know that it’s going to be a complete reversal," he said.

Where the tenants are coming from (downtown Minneapolis only)

Source: CBRE Minneapolis