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CBRE <br />MARKETVI EW MINNEAPOLIS/ST. PAUL OFFICE <br />LEASING ACTIVITY CONTINUED <br />The Archdiocese of St. Paul and Minneapolis signed <br />a 63,305-sq.-ft. lease at the Phalen Park Office <br />Center in St. Paul. This lease has been signed and <br />was announced to parishioners, but it is still <br />pending bankruptcy court approval. <br />The final top lease of the quarter was the expansion <br />of Comcast at their current River Park Plaza location <br />in the St. Paul CBD. <br />ST. PAUL CBD REDEVELOPMENT TRENDS <br />FOLLOWING NATIONAL ONES <br />According to CBRE Research, 1.8 million sq. ft. of <br />office space has been removed from the St. Paul <br />CBD submarket's tracked base over the last ten <br />years. Of this total, almost one million sq. ft. was <br />converted to multifamily housing projects in and <br />around the bustling Lowertown Neighborhood of St. <br />Paul. Figure 4 illustrates the desirable locations of <br />these renovated office buildings in relation to the <br />new home of the St. Paul Saints and the river. This <br />redevelopment trend is not unique to St. Paul. Many <br />older cities see their older office and industrial <br />space in urban areas repurposed for residential use. <br />New residents are not the only ones attracted to this <br />area. The St. Paul CBD submarket saw record <br />absorption in 2015 and has seen positive net <br />absorption since 2012. Vacancy rates are 313 basis <br />points (bps) lower year -over -year and owners are not <br />the only ones benefiting from these conditions. <br />Occupier -favorable asking rates averaging $10.03 <br />per sq. ft. are below the other downtown submarket <br />averages. <br />Figure 4: Map of Repurposed Office Buildings <br />Figure 5: Gross Asking Rate Break Down <br />Net Asking Rate (S) <br />30.00 <br />25.00 <br />2 0.0 0 — — <br />15.00 — <br />10.00 <br />5.00 <br />0 <br />0 <br />0 <br />0 <br />• Net • Tax/Ops <br />o <br />O O <br />N <br />>- <br />c,1 m v Ln o <br />O <br />Source: CBRE Research, Q1 2016. <br />GROSS RENTAL RATES INCREASING, SIMILAR <br />TO NET RATES <br />Figure 5 depicts the recent increase in gross asking <br />rates (the net rate, in addition to the operating <br />expenses and taxes on a per sq. ft. basis) which are <br />up 3.8% year -over -year. While net asking rates have <br />increased steadily over the last three years due to a <br />tightening market, buildings' taxes and operating <br />have just begun to go up incrementally. Taxes have <br />increased as a factor of buildings trading hands at <br />higher -than -assessed prices, requiring an <br />adjustment by counties. Meanwhile, many building <br />owners have begun investing money into upgrading <br />their buildings' common areas, such as adding <br />fitness centers, tenant lounges, and renovating <br />common corridors. Both of these latest phenomena <br />have led to an overall increase in the taxes and <br />operating expenses and gross rent averages. <br />,0,11-- NoAe ' ,-, <br />0* Wk o� <br />°9--9BIB <br />{y- <br />Source: CBRE Research, Q1 2016. <br />>?N. \\\ ")\<: <br />1.289 E. 5th St. <br />2.214 4th St. E <br />3.230 5th St. <br />4.8 4th Si. E <br />5.336 Robert St. <br />6.111 Kellogg Blvd. <br />7.190 5th St. E <br />B. 46 4th St. E <br />Q1 2016 CBRE Research <br />© 2016 CBRE, Inc. I 3 <br />