So the company’s newly announced plan to empty thousands of desks over the next two years could significantly interrupt the momentum of an increasingly vibrant city center.
“They’re the No. 1 employer — that’s the whole story. They are the anchor downtown,” said Russ Nelson, president of NTH real estate and project management. “There are Target vendors, the other professionals that serve them, the lawyers.”
Downtown business owners and property managers expressed a mix of sympathy and uncertainty Wednesday, the day after Target revealed that “several thousand” jobs will be cut over the next two years as part of a $2 billion cost-cutting effort.
Target owns most of 3.5 million square feet of real estate it occupies downtown, tempering worry of a sudden swell in vacated office space. It’s unclear how quickly the company will cut, or just how deeply.
But even at conservative estimates of what “several thousand” could mean, 2,000 fewer workers is a 20 percent reduction in the company’s downtown staff and will have an impact.
“Anyone would be lying if they didn’t think it was a big event,” said Peter Kelly, co-owner of The News Room, a restaurant with front doors facing Target’s main office. “There will be an impact on business, but it will be long and slow.”
The company owns Target Plaza (two towers on Nicollet Mall between S. 10th and 11th streets) and 1001 Nicollet, which some refer to as Target’s playpen. It also has long-term leases at 33 S. 6th and 50 S. 10th streets, where it fills about 900,000 and 450,000 square feet, respectively.
Mike Wilhelm, senior vice president of Zeller Realty Group in Minneapolis, said one result of the company’s cutbacks could be to slow the growth of its campus in Brooklyn Park. But he said the impact on the property market wouldn’t necessarily be dramatic.
“From a real estate perspective, it isn’t striking fear in the hearts of many,” Wilhelm said. “It might delay plans to build another tower on the site of its playpen, and it may create some shadow space in Target that will stay static for a while.”
The general economic health of the region could also soften the impact. Minnesota has one of the nation’s lowest unemployment rates and a building boom is underway in downtown Minneapolis.
If a major employer made a similar announcement 15 years ago, it could have proved catastrophic, said Josh Petzel, general manager of The Local, an Irish pub across from Target headquarters on Nicollet Mall.
“There’s no doubt that Target’s location next door is a positive impact on us. But the vibrancy of downtown Minneapolis has really grown to include residents, conventions, tourists, so not all our eggs are in one basket,” Petzel said. “We have a diversified customer base now where the companies won’t have as much impact as they would have 15 years ago.”
Housing impact unclear
The layoffs come at a time of growing concern about the depth of the downtown rental housing market.
Last year more than 1,400 new apartments hit the market in downtown Minneapolis, making it the most active submarket in the metro.
Hundreds more are expected to come online this year, as well. And though apartment vacancy rates downtown are still considered healthy, some buildings aren’t leasing up as quickly as they did last year.
Housing experts in the area say the impact of job losses depend will entirely on how many, timing and the kinds of positions that are eliminated.
Mary Bujold, president of Maxfield Research Group, said that 500 to 1,000 layoffs “may” have an impact downtown, and could have a ripple effect into the broader market.
“It really depends on whether those individuals that are laid off would leave the Twin Cities for work elsewhere or would find other employment in the Twin Cities thereby deciding to remain here,” she said. “I have moderate concern at this point without knowing more specifics.”
Patrick Carson, director of leasing services for the Downtown Resource Group, said that many of the entry- and mid-level workers at Target can’t afford the rents being charged in many of the new downtown buildings, so they rent less expensive apartments in surrounding neighborhoods such as Loring Park and Uptown.
“So I’m not sure how much of an effect that will have on the new construction in downtown Minneapolis,” Carson said.
Many of the new buildings are charging more than $2 per square foot depending on views and amenities, a premium over what renters pay in other parts of the city.
The impact will also depend on whether those who get laid off will be able to find other jobs downtown. And with a lower than average unemployment rate in the city, Carson is optimistic they will. “We’re still well ahead of the game,” he said.
Jon Fletcher, director at Alatus, a major downtown developer, agrees. He said the downtown workforce accounts for only a portion of those who are living in the area. That includes reverse commuters, empty nesters, and households seeking a second home.
“They’re actively seeking out the rich amenities, activities, and lifestyle offered in downtown Minneapolis,” he said. “The demand for housing in downtown Minneapolis continues to meet or exceed overall downtown employment trends.”
Alatus is developing Latitude 45, a luxury apartment just a few blocks from Target headquarters.
Already, Fletcher said, “we are seeing strong pre-leasing activity with over 500 individuals expressing interest in living at Latitude 45.”
Several nearby business owners say that they should be fine so long as the drawdown is gradual.
“When any company that is a fixture downtown announces a dramatic cutback, it obviously shakes the foundations a little bit,” Petzel said. “I’m more concerned for the fact that I have friends, family people from college who work there. My dad worked there for 25 years.”