Bigger vacancies, bigger chances in St. Paul?

Byline: William Morris

Vacancy is growing in the downtown St. Paul office market. So, perhaps, are the opportunities.

Competitive office space in the St. Paul central business district saw vacancy jump more than 2% in 2019 to 21.12%, according to the annual report of the Greater St. Paul Building Owners and Managers Association. The rise in vacancy came even as the overall market supply fell about 1% as several buildings underwent conversions into apartments or other redevelopment, BOMA President Joe Spartz said.

"It's this same situation that's been going on for a few years here: this consolidation in the market, the conversion of some of those [Class B] properties especially over to residential," Spartz said in an interview. "Right now for the universe to expand, we're going to need to see new [Class A] product coming on board."

This past year saw several properties, including the Empire Building and one tower of the First National Bank Building, converted into hotel or apartments, more than offsetting the addition of Treasure Island Center to the market. Several major tenants departed St. Paul in 2019, such as home loan company Ditech, which shuttered its St. Paul office in the Landmark Towers in April.

Several brokers told Finance & Commerce that, despite relatively flat demand, there are rare opportunities for larger office users to enter what Colliers Vice President Pete DuFour called "a market of fives and 10s" normally characterized by small footprints and tenants. But with several major buildings undergoing bankruptcy or other major transitions, today's market offers a wider range of options, CBRE Senior Associate Chris Gliedman said.

"St. Paul right now has some bigger blocks available. That's sort of new," Gliedman said. "There really haven't been buildings with huge blocks of space that are actively in play. So I'm curious to see how this is going to play out over the next 12 to 24 months."

Although vacancy is higher this year than any since 2010, that number has consistently fluctuated a point or two around 20% for a decade, said DuFour, and overall vacancy, including government and owner-occupied buildings remains steady at just over 10%.

"There's a little bit of fluctuation, but if you were to look back 10 years, you probably haven't moved a lot," he said.

One other trend isn't stopping: Downtown St. Paul's residential population is booming, in part thanks to former office buildings now converted into apartments. Spartz said...