According to the Bureau of Labor Statistics, the unemployment rate in the Twin Cities metropolitan statistical area (MSA) decreased 0.7 percentage points from 3.7% at the beginning of 2017 to 3.0% as of December 2017. The year-end unemployment rate compares favorably to Minnesota (3.1%) and the U.S. (4.1%) yearend figures. The Minneapolis-St. Paul MSA’s non-farm employment increased by 51,200 jobs over the past year. Office using jobs (information, professional and business services and financial activities) added 7,000 jobs during the past year.
Vacancy and Absorption Trends
The Minneapolis-St. Paul office market recorded 635,891 square feet (sf) of negative absorption in 2017. The total vacancy rate increased from 15.4% to 17.8% year-over-year. Direct vacancy increased 1.8 percentage points during the same period reaching 16.8% at the close of 2017. Comparing year-over-year direct vacancy rates, the Class A vacancy rate increased 2.5 percentage points, the Class B vacancy rate increased 1.6 percentage points and the Class C vacancy rate increased 0.4 percentage points. Weighted average asking rents in all markets and office classes increased from $25.22 per square foot (psf) in 2016 to $25.28 psf in 2017.
The Minneapolis-St. Paul office market recorded five consecutive quarters of total negative absorption. Quarters Q3 2016, Q4 2016 and Q1 2017 were primarily due to companies moving from multi-tenant properties to single tenant headquarters. Quarters Q2 2017 and Q3 2017 were primarily due to tenants vacating subleased spaces. Q2 2017 recorded 82,000 sf of positive direct absorption and 3Q 2017 recorded 33,074 sf of positive direct absorption. The Minneapolis CBD Core micro-market recorded the most positive absorption of 26,329 sf and the West market was second recording 24,740 sf. The Northeast market reported 31,290 sf negative absorption primarily due to UTC vacating 75,601 sf of sublease space while they closed and moved out of the country. There was 2,105,389 sf of office space under construction as of year-end 2017.