Another tower going up?

It's been seven years since downtown Minneapolis has sprouted a new office tower, and in recent months it's become more likely that the next one built will be for Target Corp.

The Minneapolis-based retail giant already is downtown's largest office tenant, occupying about 2.8 million square feet of space. That doesn't include its store or Target Commercial Interiors, both of which occupy prime spots on the Nicollet Mall.

Target has said it has no plans to add more office space downtown. But the clock is ticking on more than 800,000 square feet it now leases at 33 S. 6th St. and the adjoining City Center building. Target's current leases there expire in 2013 and 2015.

Target could choose to renew its leases at the City Center complex rather than relocate. Some discussions already have taken place, according to David Sternberg, senior vice president of the Minneapolis office Brookfield Properties, the buildings' Toronto-based owner. "We're very interested in retaining them as a tenant, but we also recognize that they have viable options," Sternberg said.

It would take about four years to complete a new office tower downtown, so if Target did decide to move, it probably would need to choose a site in the next year. Downtown currently has about a half-dozen sites where a new office tower could be built, and the developers that own or control those sites all are keenly aware of Target's timeline.

Target has emerged as the obvious choice to anchor a new office building because of its large space needs. To be economically viable, any new office building downtown would need to be at least 600,000 square feet, with an anchor taking about half the space, according to Russ Nelson, president of the real estate brokerage firm of Nelson, Tietz & Hoye.

Nelson and others say there aren't any other office tenants thought to be in need of that much space. "You look at some of the other major companies downtown, like Wells Fargo and Ameriprise, and it seems they're pretty well set," said Brent Erickson, a vice president at Bloomington-based NorthMarq Real Estate Services. Capella Education Co. considered anchoring a new building but recently announced that instead it would expand and extend its lease at 225 S. 6th St. A few other companies that had been in the market for large blocks of office space in the past year have done the same.

Rental rates have moved up slightly in the last few years but would need to increase more to get close to the cost of newly built space, creating the equilibrium that would encourage demand for new office space. Bill Chopp, who heads the local office of Houston-based Hines Interests, said rates for top-tier space downtown are about $18 to $25 per square foot. A new building probably would have to charge $25 to $29 per square foot, he said.

Chopp believes the downtown market could be ready to charge rents at that level by the time a new building would be done in about four years. Hines, a major downtown player that developed 50 S. 6th St., recently agreed to jointly pursue an office project on Marquette Avenue between 9th and 10th streets with the parcel's owner, the 614 Co.

Chopp said the project is still in the preliminary planning stages, with some renderings to be ready by the end of this summer. He said the building, which could be up to 1 million square feet, could be completed in five years. "Some of the top 25 employers in the area have leases that will start to roll in 2013," he said. He denied any specific interest in Target, whose first lease at the City Center complex expires that year.

The site's proximity to Nicollet and public transportation makes it attractive as an office location, Chopp said. It also would be accessible as a construction site on three sides, making construction easier and less costly.

Chopp said the Marquette site is preferable to one at 10th and Nicollet, where plans for a mixed-use project that would include office space have stalled. Hines at one time was a partner in that proposed project but bowed out about a year ago.

More recently, Minnetonka-based Opus Northwest ended its partnership with the principal developers of the 10th and Nicollet site. Opus Senior Vice President Tim Murnane said his firm wants to focus on developing other downtown sites it owns or controls. Those include the old Powers department store site on 5th Street just off Nicollet, the former Sheraton-Ritz Hotel site at 4th Street and Nicollet, and one at 7th Street and 3rd Avenue. But he also said Opus was unable to draw an office tenant to the 10th and Nicollet site.

Area real estate experts said that site's ideal location across from Target's headquarters could be offset by its relatively small size. The developers' initial land cost also was relatively high compared with some downtown sites, something that could affect the eventual overall cost of developing it.

Murnane said there are no immediate plans to build on any of its sites but said plans are the most advanced for the former Powers parcel. Opus, whose downtown office projects include the Ameriprise Financial Center and 225 S. 6th St., already has had its in-house architects draw up preliminary designs for the former Powers location, he said.

The recent additions of the Minneapolis Public Library and light-rail transit across the street have boosted the site's development potential, Murnane said. "We've owned it for 24 years and believe that it's come of age," he said. Opus is exploring developing it as a mixed-use project that would combine a hotel with office space, he said. Less office space would reduce the need to find an extra-large anchor to occupy half of it, he said.

Minneapolis-based Ryan Companies is most frequently mentioned as a developer for a project that would involve Target. Ryan built Target's headquarters and is involved with the retailer's long-term plans to develop a large corporate campus in Brooklyn Park. It's still unclear how those plans might affect its presence downtown.

Several months ago Ryan abandoned plans to market a site at Marquette and 8th Street as an office project, according to Rick Collins, vice president of development. TCF has a bank building and office tower on the site with a lease that won't expire until 2010. "We feel the timing will be better in a few years," Collins said.

Susan Feyder • 612-673-1723