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<br /> 10 September 24,2004 THE BUSINESS JOURNAL Commercial Real Estate &Leasing Guide twincities.bizjournals.com
<br /> roundtable: the state of the Twin Cities office market
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<br /> f � ;k Ft„ A „ }, } , , , , FAR LEFT: Dennis Doyle LEFT:James Freytag
<br /> r„:,,,/,,,x<,� t r TY ABOVE: Kent Warden
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<br /> x +3 p y gip, r t overbuilt office supply.We were starting to build buildings
<br /> ? ` t , a.f r, ' ,rc r r 3% again in five or six years. I think that generally, optimism
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<br /> How soon will the office ?
<br /> The Business Journal:What is the effect of outsourcing
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<br /> „N + a Warden: I'm not talking to anybody that sees that as a
<br /> bb x °x '' " � Y� space ge filled? huge problem. At our ROMA International Conference at
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<br /> n= x:„ -,.:74:::: the end of June in Toronto,our national chairmanincluded
<br /> ` -='..:•'Z-'7'.4:', "•:5';`,,,...--'..:k" f3Sarah Sttumon Dale I Contributii writer some numbersthatIthou ht wereinterestin in his State of
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<br /> < >' ; _ �' k Mt the Industry address.The worst case scenario that they've
<br /> been able to pull out is that we might lose up to 3.3 million
<br /> xperts agree it is a matter of when,not if,the office strong dynamo is Target Corp.Even though they built 2 mil jobs over the next 15 years.That is a lot of jobs,and if you
<br /> 47,,.. -space in the Twin Cities will be absorbed.But the lion s uare feet of their own cor orate headquarters space, equate it to square footage ou are robabl approaching
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<br /> warn,the when could take time. they have really already filled that up and are out in the com magnitude of 500 million square feet,which is significant.
<br /> James Freytag,vice president for office properties for CB petitive market now But if you look at in context,that is only 2.5 percent of total
<br /> Richard Ellis estimates current vacancies may not be Freytag: Currently, the Class A tenants seem to be the U.S. employment.To balance that,you also need to look at
<br /> absorbed until 2009.But Kent Warden,executive director of ones growing—at least out in the suburbs.Then you have the benefits.If in fact our domestic companies can be more
<br /> the Greater Minneapolis Building Owners and Managers the financial services.They are growing. profitable because of outsourcing certain of their functions
<br /> Association,says he is optimistic it may be sooner,pointing but maintaining their core business here, they may grow
<br /> to history.In the 1990 downturn,experts predicted it would The Business Journal:Is the second half of 2004 going to and be profitable and create jobs in other ways.
<br /> take 16 years to fill up overbuilt office space here.But new be enough to take up the space?If not,by when? Doyle: If you are a regional or national manufacturing
<br /> offices were starting to be built within five or six years. Freytag:Oh heavens,no.You need to have a quite signif company, you are looking into whether you will produce
<br /> "It really does depend upon the economy and how many
<br /> 'cant increase in the current job levels.For example,in the your product in China or offshore in some area. With that
<br /> jobs are created,"said Dennis Doyle,CEO of Welsh Cos. metro area,we need to create 42,000 jobs in the service sec said,they still continue to do their marketing,their distri
<br /> Doyle,Freytag and Warden discussed with The Business for—the occupiers of space—to get the vacancy rate from bution,their retailing all out of the United States.It is real
<br /> Journal the issue of absorption, a comparative measure its current level to get to 7 percent. ly just a different paradigm.
<br /> over time of the relative change in available office space. Doyle:But the problem is there are two different job num
<br /> bars.There are the job numbers that include the Fortune 500 The Business Journal:When will speculative office con
<br /> The Business Journal:Who is going to fill it up? and there are the job numbers that include all of the small struction realistically return?
<br /> Doyle:I think it will be small businesses that are growing, business.Our jobs from Fortune 500s are very small. Freytag:It will return when the gross rental rate gets to
<br /> who have been started in Minnesota and will continue to Freytag:Depending upon what the employment growth about $28 per square foot. That is when it returns. Like
<br /> grow here.Those 5,000 to 20,000 square foot businesses that rate is or what approximate square footage you use,it is like- before,you had the prognostications that it is going to be 16
<br /> turn into the 50,000 to 100,000 square feet five,six years later. ly in 2009 to get back to a 10 percent vacancy. years.It might not be that far away.That class A market—
<br /> Warden: I would say downtown, the fmancial services Warden: I think the last really deep down cycle we had and those are generally the buildings that get built in a new
<br /> sector. Long term, I think some of them are going to be was back in the early 1990s.At that time,I think some of the cycle—that is really healthy.Take 494.In a Class A setting,
<br /> digesting some built-in vacancy. I think the other really experts were saying we could have as much as a 16-year the vacancy rate is about 8 percent.Compared to the overall
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