Last year's sharp drop in commercial property sales rippled across virtually every segment of the Twin Cities-area market, and in some cases more severely than other parts of the country.
The dollar value of office property sales in both downtown Minneapolis and St. Paul fell nearly 90 percent, compared with a 73 percent drop for central business districts nationwide. The figures were compiled by two widely quoted real estate research firms, Real Capital Analytics of New York and LoopNet of San Francisco.
The average price per square foot for office space sold in downtown Minneapolis and St. Paul decreased 23 percent while dropping just 4 percent nationwide. The decline for the two downtowns was one of the largest for 10 Midwestern metro markets surveyed by Real Capital and LoopNet and contrasts with gains in some Midwestern cities such as Chicago, Detroit, Indianapolis and Kansas City.
Area real estate professionals say the main reasons for the substantial drop in sales volume were a lack of large office building deals and a sharp fall in buying by foreign and institutional investors. They only accounted for 5 percent of the value of office properties sold in 2008, according to figures from Real Capital and LoopNet, a commercial real estate firm. Foreign buyers accounted for more than 20 percent of the office deals done in the Twin Cities area in 2007.
"The fall in activity from institutions shows up here more than in some Midwestern markets, like Kansas City and Cincinnati, which never had very much to begin with," said Terry Kingston, an executive director in Cushman & Wakefield's Twin Cities office. "Capital markets have been frozen," he said, putting institutional investors on the sidelines.
"By and large it's been quiet across all fronts," said Scott Pollock, vice president of investment services at Bloomington-based NorthMarq. Pollock said one positive conclusion to draw is that it doesn't indicate much in the way of forced sales by owners unable to make mortgage payments or refinance loans. "The institutional owners here tend to be pretty stable and have deep pockets," he said.
Office deals weren't the only ones to languish last year, according to Real Capital and LoopNet. The total value of retail properties sold in the Twin Cities area fell about 67 percent, slightly better than the 72 percent decline nationwide.
One of the largest retail deals was the sale of a property to owners who plan to eventually tear it down: The Wayzata Bay Shopping Center, which makes up about two-thirds of the commercial property in downtown Wayzata, was sold for $24 million to Wayzata Bay Redevelopment Co. The developer, a subsidiary of Roseville-based Presbyterian Homes and Services, will demolish the strip mall to make way for a $160 million mixed-use project to include residential retail and office space and a hotel.
