A new report by Jones Lang LaSalle probes how consolidation in the banking and financial services industry affects real estate decisions in various secondary markets, including Minneapolis-St. Paul. This comes as institutions trim costs as they face sluggish employment growth and new govenment regulations (the Volcker Rule)  that require them to focus on their core businesses.

"Over the near term, the industry will become increasingly dominated by its largest and smallest players as operating in the middle market becomes increasingly difficult," the report states.

The study of recent leasing activity among banks and financial services firms across the U.S. and Canada found that renewals, consolidations and subleases are the "most-favored space strategies," according to the report. The missive mentions TCF Bank's current consolidation strategy of closing multiple retail branches and its decreasing need for office space in the CBD.

The biggest development locally noted in the report involves Wells Fargo's decision to consolidate its office space in downtown Minneapolis into the two office towers that will help anchor the proposed $400 million Downtown East complex.

Challenges facing the Twin Cities in terms of financial instititions and office space include the number of trophy properties that have sold recently, perhaps causing an increase in rents; the reduction of shadow space and retail branches; and the volatility facing the mortgage business.

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