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Minneapolis/St. Paul : Office - Q1 2017

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The Minnesota economy continued to remain strong, as the state noted a year-end 3.9% unemployment rate. This is only the fourth time in the last 70 years that the state has had consecutive years of sub-4% unemployment rates. There is no immediate employment slow down expected as there were still 97,400 active open job vacancies at the end of 2016, which is up 1.3% from end of last year.

Direct and overall vacancy rates remained relatively flat throughout the first quarter of 2017. New sublease vacancy was limited, and the largest sublease absorption reported only 16,919 square feet (SF). Absorption remained negative, but was driven primarily by one submarket: the Southwest. Four out of the last five quarters the Southwest registered negative absorption. This quarter multiple tenants downsized in this submarket, which added up to over 100,000 SF.

Direct and overall asking rates continue to trend northward. Although some well positioned assets have pressed net rental rates, the majority of building asking rents have not increased. The recent rises in taxes and operating expenses have pushed gross rates higher and stalled net rental growth. Bigger than just the asking rates are longer lease terms (7 – 10 years) with a greater concern over tenant improvement allowances and buildout costs for possible relocations. Some companies are opting to stay in place for longer periods and at a reduced footprint. Tenants are also taking much longer to make real estate decisions.

Source : Cushman & Wakefield

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