A real estate investment trust and local developer are planning to build a 14-story office tower on Interstate 394 next to the Carlson Center in Minnetonka.
This is welcome news for the Twin Cities office market, which has largely stood on the sidelines of the recent recovery while scores of residential and mixed-use projects have gone up.
But the project will only happen if the owner, Artis REIT, can find an anchor tenant. That will dictate whether the building can open in 2017 or if its timeline is delayed.
"We are hopeful that we can kick it off within the next 12 months, if we can find that right lead tenant," said Brian Wasserman, CBRE's senior vice president.
The new project is one of only a few office project announcements in recent years to be made without a signed user for the space. This is referred to as speculative construction, a type of office development that has lacked strong market support in the Twin Cities. Monday's announcement signals the start of a marketing and leasing campaign led by CBRE for the project.
But the Winnipeg-based REIT and its construction partner, Minneapolis-based Ryan Cos., are confident about the I-394 corridor, which has been a particularly robust geographic region for office growth. Artis bought 601 Carlson Parkway, which is one of the two adjacent towers to this proposed site, last year for $75 million.
The western suburban submarket had the lowest vacancy rate in the Twin Cities, 12.2 percent in the third quarter of 2015, according to research from real estate firm Jones Lang LaSalle. Asking rents for Class A buildings, the top tier in office space, were nearly as high in the western submarket as downtown Minneapolis — $30.50 a square foot compared with $30.76 a square foot.
"The 394 market is as tight as it's ever been, especially for Class A," said Wasserman. He added that many corporate users are having a difficult time finding enough empty floors next to one another where they could relocate their companies.
Wasserman said the owner will move forward if a tenant signs for 50 percent of the building, but — for the right tenant — would consider beginning construction with only a third of it leased.
Early renderings for the new office building at the intersection of I-394 and I-494 show 11 floors of leasable office space — or a total of 317,000 square feet — sitting atop an executive lobby and climate-controlled parking. The color of the materials resembles the neighboring Carlson Towers, but the structure will be rectangular in shape. The new building at 801 Carlson Parkway will connect via covered walkway to the existing 16-story 601 Carlson Tower. The 701 tower is owned and occupied by the Carlson, a global hospitality and travel company.
The new structure will have east- and west-facing balconies on levels 5-14 and outdoor terraces on floors 5 and 13.
A development cost estimate has not yet been released.
Artis REIT will be competing with at least two other speculative office projects in the metro that are further along in the process: the Offices at MOA, a 10-story project nearing completion at the Mall of America, and T3, a seven-story brick-and-timber building under construction in the North Loop neighborhood of Minneapolis. Around this time last year, Bloomington-based United Properties announced plans for a speculative office building next to Target Field Station, but that has yet to put a shovel in the ground.
"The Mall of America space is very, very different — with access to the airport and light-rail — from Minnetonka or Wayzata," said Marc Nanne, senior vice president at Jones Lang LaSalle, Minneapolis. "We are seeing both of those suburban locations be successful, but they appeal to very different tenants."
Construction on the Offices at MOA is nearing completion. The project has yet to name any office tenants.