The coronavirus variants continue to pause return-to-work dates for large employers throughout the country and the Twin Cities is not immune to this trend. Q3 reports indicate a vacancy rate of approximately 10% in the Twin Cities metro. This surpasses the Great Recession which was at 8.6% in 2009 (Avison & Young).
The two downtown areas tell an even bleaker story: Minneapolis is at nearly 14% vacancy and the St. Paul central business district at approximately 12% (Colliers). On the bright side, those numbers sound positively optimistic as compared to other large metros: Chicago: 19%: NYC: 18%; San Francisco: 20.5% (CBRE).
Large corporate office users continue to “kick the can” and delay decision making on return-to-work dates. Many of the firms that have returned to the office have shifted how they use their space. The firms moving forward are giving back space and are converting their offices into hybrid workplaces with redesigned or reconfigured offices, open spaces, workstations, and amenity spaces. To accommodate the part-home, part-office work schedules, technology will be utilized with reservation systems to book office workspaces and meeting rooms.
In addition to office space reconfiguration, another trend that continues to increase in popularity is flex office spaces (aka co-working spaces). These spaces allow employers to open spaces quickly and can be a test market strategy for corporations hoping to capture a broader network of employees without the need to commit to long-term leases. Currently, New York City has an 97% occupancy rate for these spaces according to GlobeSt.com.
How else has the market responded to the excess of empty office spaces? Another trend has been ‘adaptive reuse’, which is the conversion of unused office spaces into apartments. This trend started in the early 2000s but has become more and more common during the pandemic. According to RentCafé, 13,250 units were built nationally in 2020 and an additional 20,100 are forecasted to be complete by the end of 2021. These conversions have been attractive to investors and renters alike due to urban locations and proximity to desirable amenities. So far, the building-to-apartment trend has gained traction in Washington D.C., Philadelphia, Cleveland, and Los Angeles. As for the Twin Cities, there have been random one-offs here and there but no real trend in this direction, yet. But with Covid and its variants, “yet” is the operative word!
MEGHAN HUBER, LEED, AP, WELL AP
President, Welsh Construction