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United Properties Feature: Upsides of Upgrading
<br />Due to rising construction costs, „
<br />rates must continue increasing to
<br />support new construction. (Current ',
<br />net rates along Nicollet Mall are
<br />$15-$20). The minimum size of a
<br />new tower would be 500,000 sq.
<br />ft., and an anchor tenant is
<br />needed to occupy one-third to _
<br />one-half of the space.
<br />"An anchor must step up and pay
<br />$22-$25 net rent. That's new
<br />territory in Minneapolis," says Jim
<br />Montez, United Properties senior
<br />office brokerage associate.
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<br />Potential anchors include Target, (C/ick image to en/age)
<br />which occupies roughly 2.5 million square feet downtown. Capella Education Co., Fallon and Deloitte
<br />and Touche are also on developers' radar screens.
<br />A large acquisition or merger also could result in an "under-the-radar" tenant unexpectedly needing
<br />space. "In a development cycle, there's always pent-up demand that's difficult to predict," Montez
<br />says.
<br />Some large blocks exist downtown. Rider Bennett law firm is closing, leaving behind 100,000 sq. ft, at
<br />33 South Sixth. Blocks are available at 225 S. Sixth, 701 Building, Fifth Street Towers and others. The
<br />only large space along Nicollet Mall is an 80,000-sq.-ft. sublease at Piper Jaffray Tower. In 2008, Fifth
<br />Street Towers and 225 S. Sixth could have blocks of 200,000 sq. ft. or more.
<br />Montez also points to a trend of traditionally suburban tenants relocating downtown. "More than a
<br />dozen suburban tenants moved downtown in the past year," Montez says. 'They fall into two
<br />categories: Target vendors and those who want the downtown 'energy.' Target vendors include
<br />Colgate, Clorox and Revlon. Those that want to be part of the downtown excitement, which aids
<br />employee and recruitment and retention, and capitalize on business opportunities include
<br />Colle+McVoy, Foster Klima & Co., Griffen International Advisors and Dunham Associates. Others
<br />exploring downtown include Virchow Krause."
<br />Few, if any, tenants recently relocated from downtown to the suburbs. Transportation is a growing
<br />factor. 'Tenants today are saying it's easier to get downtown than crossing many of the suburbs,"
<br />Montez says. "Downtown is centrally located, and light rail is making it more accessible."
<br />Developers poised in West
<br />Class A space is at a premium in the West -- no blocks larger than 50,000 sq. ft. are available --
<br />which will spur development. Class A vacancy is 10.3%; overall the West market is 11.9%. Five
<br />leases totaling 190,000 sq. ft. recently were signed, and tenants will take occupancy later this year.
<br />"Users continue scouting the West," says Bob Revoir, United Properties vice president -office
<br />brokerage. "Christopher & Banks is looking fora 100,000-sq.-ft. build-to-suit, and two 30,000-sq.-ft.
<br />users are looking to relocate there in fourth quarter."
<br />While nothing is under construction, developers are in the "starting blocks." Four projects are planned
<br />totaling 1.24 million square feet. The largest is the former Novartis site in St. Louis Park, dubbed
<br />West End. Duke will demolish existing space and develop mixed-use, which could include 1 million
<br />square feet of office. Also planned are the 165,000-sq.-ft. Bassett Creek Office Center, proposed by
<br />Industrial Equities in Plymouth, and the 114,000-sq.-ft. Plymouth Woods Office Center Phase II,
<br />proposed by St. Paul Properties. Also, Hempel Properties will break ground in the third quarter on the
<br />mixed-use, 55,000-sq.-ft. Golden Village in Golden Valley, of which 35,000 sq. ft. will be office.
<br />Page 3 of 5
<br />http://outlook.uproperties.com/features/2007/2007Apri1_RaceForSpace.htm 5/11/2007
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