COVID-19 Puts the Brakes on the Office Market
The second quarter of 2020 Minneapolis-St. Paul multi-tenant office market closed with a negative absorption of 131,423 square feet, reflecting the uncertainty in the market due to the novel coronavirus. Though some tenants did move or renew their leases in Q2, they were those that had already been in the process of negotiations prior to the government-mandated shutdowns that began in late Q1. Most tenants that had not started negotiations by mid-March paused to reevaluate their needs as work-from-home became necessary. However, they are now left to wait and see what this means to their overall needs for office space as they start phasing their return to the office. While some tenants have already started returning to the office, many plan to continue to have clients work from home through the end of 2020. Landlords are reporting building personnel occupancy of 10 to 20%, with only mission-critical employees on site. Thirty-seven subleases totaling 303,000 square feet were added to the market since the beginning of Q2, metro-wide. On a positive note, landlords are reporting far fewer tenant defaults than they expected through Q2, likely due to the Small Business Administration’s popular PPP program. As we head into the back half of 2020, we anticipate little market absorption as tenants put off real estate decisions as long as they can. Most of those that need to address these issues are choosing shorter term lease extensions, when possible.