With the Twin Cities office market finally on the rebound following a long recession malaise, it's not just the gleaming downtown office towers that are landing "A-list" tenants: A handful of suburban hot spots are also pushing the overall market into positive territory with their combination of access and amenities.
One such hot spot is the Interstate 494-France Avenue area in the southwest metro market. According to figures released this week by commercial real estate firm DTZ, the southwest market's vacancy rate at the end of 2014 stood at 13.6 percent, nearly as robust as the downtown Minneapolis rate of 13.3 percent.
It's a significant number because the southwest metro's inventory of 13.2 million square feet of office space makes it the biggest sector behind the central business district. Its healthy performance — both in terms of vacancies and rents — is being driven by strong demand for top-notch Class A space in and around the I-494/France Avenue node, DTZ research analyst Tyler Allen said.
"That 'hot spot' and another one in the west metro market along Interstate 394 (near the Shops at West End) are really mixed-use suburban centers, which is where employees want to go and where you can attract and keep good workers," he said. "If a large block of space opens up in one of these areas, companies are jumping at it."
With an expanding array of dining, shopping and housing options, Edina's France Avenue has become the driving force along the entire I-494 corridor, Allen said. Asking rents in such Class A office buildings as Northland Plaza, Minnesota Center and Centennial Lakes Office Park all are solidly into the $15-per-square-foot range, helping boost the entire submarket's average to $15.92.
It has an Achilles heel, however. Big, contiguous spaces to accommodate major moves are in short supply. Companies that want a lot of Class A space in the area are frequently forced to consider constructing their own buildings.
That was one option studied by Barr Engineering. But with the help of Frauenshuh Commercial Real Estate Group broker Shannon Reilly, the firm instead signed a 150,000-square-foot lease at One MarketPointe, a Class A building just northwest of the France/I-494 node. The company will move there from smaller Class B quarters in Edina at the end of the year.
"It was really important that when we relocated in order to accommodate our growth, we stay in the southwest market, because this is where our employees wanted to work," said Greg Keil, chief operating officer for Barr. "We want to retain them and the team we have built."
But, he added, it wasn't easy for Barr to track down sufficient space in the southwest metro that came all under one roof and was available within its tight time frame.
"Finding 150,000 square feet that was going to work with our timing was not a straightforward process," Keil said. "We initially looked at build-to-suit, acquiring a building and other things, but when One MarketPointe came up, we were able to make the timing work."
Frauenshuh's Reilly said Barr Engineering's tale of looking high and low to find a roomy enough Class A space in the southwest market is a common one.
"The economy is coming back, and I see a trend of tenants in Class B buildings wanting to potentially upgrade to Class A," she said. "But for large users in the southwest market, the choices are very limited.
"However, I also believe that over the next two years or so, there's going to be some of these larger corporate users currently in single-tenant or owner-occupied buildings who will be downsizing or relocating — that will free up some space. For instance, I'm aware of one corporate user who will likely be vacating 100,000 square feet in the southwest market sometime soon."
Don Jacobson is a freelance writer in St. Paul and former editor of the Minnesota Real Estate Journal.