The Twin Cities office leasing market has appeared to chill as rental rates and the absorption of available office square footage have flattened, but real estate experts said the numbers aren't cause for alarm.

"Despite vibrant leasing activity with companies relocating, expanding and contracting, annual absorption remained modest at 632,436 square feet," according to a narrative from the recent biannual Compass report from the Twin Cities office of Cushman & Wakefield. "There is a disconnect between what the data shows and actual activity in the marketplace."

The Compass report released this month had similar findings last year.

"It's a very interesting marketplace right now," said Mark Stevens, a senior director that is part of Cushman & Wakefield's downtown Minneapolis project leasing team.

Many companies continue to downsize their space. Some space freed up by large office users like Wells Fargo, which moved into its own towers downtown, is still hitting the market.

As companies try to be more efficient, they are resizing their space and sometimes relocating. Tenant improvement costs have increased, contributing to higher rents and longer-term leases for some.

While rental rates in general are predicted to hold, some buildings with character that are in great locations, like in the North Loop, can be the exceptions and demand higher rent.

Meanwhile, an amenities arms race continues to unfold, with landlords of different buildings investing a lot of capital to reposition their buildings. In the last year, there have been major renovations at several downtown Minneapolis buildings, such as Fifth Street Towers and Baker Center. Construction also started in several large projects, like the former Dayton's store, which is being converted into office and retail space.

The RBC Plaza on Nicollet Mall and 6th Street will have some of its improvements, such as a tenant lounge, complete by next week.

Co-working spaces are expected to continue to expand. There is more than 700,000 square feet of co-working space in the metro with the recent opening of several new facilities of that type.

Tenants will also continue to leverage their office spaces to attract workers, the Compass report said. Companies are willing to invest more in their spaces to attract and retain talent.

Nicole Norfleet