Absorption has been negative for 16 of the past 17 quarters. In Q3, negative absorption reached 432,847 SF, increasing vacancy to 22.9%. Some tenants, seeking to downsize, are opting to pay termination fees to exit leases.

With many needing to reduce their space by 50% or more, paying the fee and negotiating a smaller, more affordable lease often proves more cost-effective than restructuring an existing lease. While rents have remained relatively stable, tenant concessions are on the rise.

Leasing activity slowed to 886,793 square feet in the 2nd quarter, down from an average of1.6 million square feet per quarter during the previous five quarters. Most companies arereducing the amount of space they occupy but are making longer-term decisions by eithercommitting to new office spaces or renewing for longer terms.

Steve Shepherd lends his expertise in Design-Builder ARCO/Murray's, report on the current market. ‘Hot Takes’ from experienced Minneapolis brokers on everything from industrial, office, and retail leasing activity by submarket to the impact of rental rate increases,  the current lending appetite, and more. 

After negative 1.7 MSF in 2023, absorption continues to moderate, slowing to negative 189,219 square feet in the 4th quarter of 2023 and negative 138,102 in the first quarter of 2024.

Challenges in the Minneapolis CBD have contributed to a steep increase in vacancy since the 1st quarter of 2020. The vacancy rate has climbed over 60% from 15.8% in the firstquarter of 2020 to 25.3% currently. This compares to a 52.0% increase in the suburbs and a 40.4% increase overall. 

As the office market grapples with significant changes in space utilization, the Minneapolis market also has the highest reduction of office-dependent employment. Information, financial activities and professional and business services were industries that had a decline in employment levels on an annual basis as of August.