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Another downtown Minneapolis tower is on the market, this time the Wells Fargo Center as the commercial real estate sector remains under pressure in the post-pandemic economy.
More evidence hybrid work policies are affecting real estate: Capella University significantly downsized its footprint at the Sixth Street tower that bears its name, giving up 167,000 square feet of leased space. Capella when its new lease takes effect will occupy only 111,714 square feet in the building, according to the first quarter office market report from Chicago-based JLL, a commercial real estate services firm.
"Capella University moved to hybrid work model expectations in 2023 following the COVID-19 pandemic," said Lucy Wilson-Garza, spokeswoman for Capella owner Strategic Education Inc. "We routinely assess our physical, brick-and-mortar office space to accommodate the dynamic needs of our employee base. Early this year, Capella University reevaluated our lease at the Capella Tower and used this opportunity to consolidate space."
Dallas-based CBRE Group Inc., which handles leasing for Capella Tower, declined comment. Officials for San Francisco-based Shorenstein Properties, which owns the tower, could not be reached for comment.
The overall office vacancy rate for downtown Minneapolis at the end of the first quarter was 31.3%, up a percentage point from the same quarter a year ago, according to Chicago-based Cushman & Wakefield, a commercial real estate services firm. In the first quarter of 2019, the rate was 19.6%.
More than 8.9 million square feet of office space in downtown Minneapolis is now available for lease, the firm said.
The Miami-based Starwood Capital Group acquired Wells Fargo Center for $315 million in 2019. Starwood representatives could not be reached for comment. CBRE is handling the listing.
The news regarding Wells Fargo and Capella are par for the course, real estate experts said.
Two dominant themes of today's office market are that tenants are seeking less space and buildings are being sold at steep discounts compared to previous sales.
"Values have dropped significantly and it's time for a reset," said Mike Salmen, managing principal for the Minneapolis office of Houston-based Transwestern.
The Cushman & Wakefield report took note of a smaller deal earlier this year in the Warehouse District: "the Kickernick Building in the Minneapolis CBD was sold at auction for $3.8 million, or approximately 20% of its 2017 sale price of $19.15 million."
Adam Duininck, CEO of the Minneapolis Downtown Council, said the downtown recovery remains mixed.
"I think there's a little bit of good news and a little bit of challenging news," said Adam Duininck, CEO of the Minneapolis Downtown Council.
Duininck pointed to U.S. Bancorp signing a 10-year renewal for its downtown headquarters last fall as a good sign. Downtown Council statistics show hotel occupancy, transit ridership and returning office workers are all increasing.
"We know there's more activity that's happening month by month," Duininck said.