Smaller work spaces will be trend of 2014

With technology quickly changing how people work together, one of the major commercial real estate trends of 2014 will be a push by building owners and corporate tenants to remodel and reconfigure their spaces, a pair of Twin Cities experts predicted.

Also likely to dominate the coming year is a continued boom in apartment construction and more new development in the medical office sector.

Richard Keller, a first vice president in the Bloomington office of CBRE, and Julie Wischnack, community development director for the city of Minnetonka, spent the past year watching commercial real estate trends play out from the private and public sectors respectively and seeing some sure bets move forward into 2014.

One they both mentioned is the reconfiguring of offices to keep up with new "paperless" environments, which have had the effect of reducing space requirements for individual workstations and instead emphasizing open, collaborative areas within offices.

This is a fundamental shift from the traditional formula in which office workers have been assigned around 225 square feet for individual work stations and is causing corporate tenants to rethink their space needs, Keller said.

"The trend of space optimization, or space compression, will really be coming to the forefront this year," he said. "It's the goal of every business to become as cost efficient as they can be without creating an uncomfortable environment for their employees."

The ratio of square footage per employee is quickly coming down, aided by advances in wireless technology and a preference by younger workers to work in team settings.

"There are lot of companies that want to break [the] 200-square-foot barrier and get down to about 150," he said.

Meeting this new goal will require many office buildings to make major modifications — a trend that's evident in Minnetonka, Wisch­nack said.

"We're seeing a lot of commercial reinvestment, a lot of office remodeling projects going on," she said. "The seems to be pretty strong going into the new year."

Hot projects

In terms of construction, the trends are clearly indicating more multifamily housing and medical office projects.

Despite the addition of thousands of apartment units to the Twin Cities market in recent years, vacancies have remained low and rents have kept rising because of a seemingly insatiable demand.

Wischnack pointed to a proposal from Carlson Real Estate Co. and Trammell Crow to build a 175-unit luxury apartment complex on a 12-acre site north of the Carlson Towers at the Interstate 494/394 cloverleaf in Minnetonka as evidence.

Depending on the city's approval process, that project could be underway by spring or summer.

Meanwhile, the western suburb has become a hot spot for medical offices, including the 63,000-square-foot Minnetonka Medical Center, which broke ground in September and will be anchored by a North Memorial Medical Center clinic.

Hennepin County Medical Center is also studying the possibility of a satellite clinic at Excelsior Boulevard and Shady Oak Road, and medical office developer the Davis Group is constructing another medical building to be anchored by Minnesota Eye Consultants.

Colliers International reported late in the year that it was tracking about 700,000 square feet of medical office space currently under construction in the Twin Cities market, thanks mainly to strong demand from investors, who consider it a safe long-term real estate play.

The implementation of the Affordable Care Act is also spurring activity, since more people will now have access to medical care.

"We continue to get inquiries about medical office projects, and I think that will continue," Wischnack said. "I have also heard the same thing from other communities and from developers as well. Every time they turn around, there's a new medical office being proposed."

Don Jacobson is a St. Paul-based freelance writer and former editor of the Minnesota Real Estate Journal. He has ­covered Twin Cities commercial real estate for about 10 years.