The real victims of the oncoming office space glut might be suburbs like Eagan

City leaders come to terms with the radical shifts of the COVID pandemic. One open question: How much coronavirus-fueled work-from-home has changed office jobs, and what that means for the built environment.

It is difficult to overestimate the importance of this issue. Millions of square feet of office buildings, expensive highways, complete transportation systems, and hundreds of square miles of parking in Minnesota depend on how this happens.

Outside of corporate boardrooms, no one knows what’s going to happen. Everyone has a theory about the future of offices, but the answers you receive turn into a political Rorschach test. Downtown Minneapolis is doomed or thriving, for example, as is the Twin Cities’ fledgling light rail system or the state’s “MnPASS” corridors.

Meanwhile, large employers are slowly making up their minds, and the world of commercial real estate is developing before our eyes.

Meanwhile in Egan

The suburbs of the Twin Cities may be a surprising casualty. Take the 64,000-person suburb of Eagan, Minnesota, where two ads earlier this year turned the business landscape on its head. Two of the city’s largest employers have terminated leases on massive office complexes, both of which served as local corporate headquarters.

In January, Thomson Reuters, a legal publishing firm that employs about 5,000 people, announced abandonment from most of Eagan’s campuses. Because of the hybrid business, she sells 65% of her 40 acres of office space, reducing personal capacity while searching for a new permanent home elsewhere in the metro.

Three months later, Blue Cross and Blue Shield from Minnesota Announce the sale Most are based in Egan, a 25-acre site three miles to the west down Yankee Doodle Road. Its spokesperson issued a nearly identical pablum—”By shrinking our real estate footprint, we believe the company can create a more collaborative, productive, and enjoyable environment for those times when work is done on site”—referring to a shift sweeping through the suburbs.

Because commercial real estate is taxed at a higher rate than residential real estate, for a city like Eagan, b $42 millionThe loss of the company’s two major headquarters is a blow to its bottom line. In 2022, the two office complexes have provided about $3 million in tax dollars to the city, county, and school board. (The City of Eagan’s withholding of tax revenue is about a third of that total.)

No matter what happens to these two locations, they will likely be appraised at much lower values ​​going forward, and that will likely affect the rest of the suburban commercial real estate market. This is putting pressure on single-family residential properties in Egan to make up the difference, shifting the low tax balance that attracts people to live in the Second Ring suburbs in the first place.

For their part, Egan city leaders say these kinds of economic changes are nothing new, and the city is well positioned to survive.

“We continue to strive for economic balance, being flexible, investing in infrastructure, creating amazing amenities for everyone, and being flexible in meeting market and technology needs,” city manager Diane Miller wrote in an email.

She pointed to the shifting loss of former corporate headquarters in the city, including Lockheed Martin and Northwest Airlines, both of which have disappeared due to mergers or outsourcing.

“By employing flexibility and patience, we have been able to maintain our strong and diverse local economy through adaptable redevelopment of Central Park Commons, Viking Lakes and Cedar Grove, and significant private investment in the reconfiguration and expansion of existing businesses,” said Miller.

Reduce, Reuse, Reshape

The economy is always changing, but with COVID, the shift is bigger and faster than usual. Cities where office space is concentrated will have to adapt. For many places, that means residential conversion, which is a hot topic in town planning departments. The problem is that the re-use of office buildings for housing Not an easy task. Much depends on the type of building and the popular real estate axiom about “location”.

This is where significant differences between office buildings come into play. As reported recently in The New York Times, Some old offices are much easier to convert to residential uses than mid-century spaces with more “open” floor plans. In other words, for a suburban “landscape cutter,” the window-to-area ratio is worse than that of a vertically oriented office tower in the city center.

The discrepancy between the positional advantages is greater. In general, areas that are walkable and packed with amenities are more attractive, and suburban parks dotted along highways have fewer of these connections. In general, this means that older office buildings downtown do better, while larger mid-century offices make conversion projects more difficult.

Short sighted investments in south minneapolis

While I was working on this article, Wells Fargo, one of the largest employers in the metro, announced After another office is closed and consolidated. It will sell offices in South Minneapolis (north of Lake Street) and St. Louis Park, with workers concentrated in buildings in downtown Minneapolis and Shoreview. It’s a sign of what insiders refer to as “Journey to qualityCompanies that give up Class B and C office space.

Journal of Finance and Commerce Called monotheism “A big win for downtown Minneapolis,” but in the case of Minneapolis, it’s a mixed blessing. It comes at the expense of the city’s large South Minneapolis office complex, which employed more than 3,000 people before COVID.

The loss of jobs is as ridiculous as the state Department of Transportation Millions spent to add an onramp highway to the site over a decade ago. Then in 2018, despite the community’s opposition, Wells Fargo Construction of a six-storey parking ramp Adjacent to the office building, though multiple transit investments within a half mile radius. In retrospect, with an office building soon vacant, both investments seem daunting.

The good news is that, compared to its suburban brethren, Wells Fargo’s office reuse seems likely. It is in a hot spot next to the thriving Midtown Greenway, in a part of town where housing has been in high demand. In my view, this kind of office-to-residential shift seems ripe for Mayor Jacob Frey priority called.

Meanwhile, in Egan, the future of the sprawling office park is looking a little more grey.

“As in the past, we continue to work with[Thomson Reuters],” said Miller, the city manager. “Give them the right resources to find their next home, hopefully, here in Egan.”