Class A space stays in demand, but Twin Cities office vacancy climbs.

Byline: Dan Netter

Office space in the Twin Cities metro area continues to see an increase in vacancy rates as more companies look for premium spaces and some larger campuses are left behind.

A new report by JLL found that for the third quarter of 2023, the overall office vacancy rate was 21.1%.

Andrea Leon, a vice president at JLL, said that the "flight to quality trend" has prevailed in the Twin Cities. She said the dispersion of vacancy rates between Class A leases and everything else is uneven, as more tenants are less afraid of paying more for rent with more amenities like access to parking and outdoor spaces.

"They're willing to make that jump for doing whatever they can to get their employees to come use office space," she said. "So whether that's moving to a new building, redoing their space at their current building."

Sam Newberg, the research director for JLL, said he expects vacancy rates to continue to climb for the next few quarters because of announcements made or announcements about to be made.

Drivers of vacancy on the other hand, according to the report include Blue Cross Blue Shield ditching its 442,000 square-foot headquarters in Eagan; Best Buy laying off many of its workers and downsizing; UnitedHealth Group not renewing its lease in Minnetonka; and Cargill leaving some of its office space.

Overall, vacancy is now at 21.1%, as compared to last year's 19%. Absorption remains negative, clocking in at more than negative 2.6 million square feet.

One of the drivers for leasing in the third quarter was Thomson Reuters signing a 300,000-square-foot office deal in Eagan, a sublease of Prime Therapeutics' campus at 2900 Ames Crossing Road in Eagan. However, this leaves behind a 263-acre campus that was Thomson Reuters' former...