Office occupancy continues to grow in St. Paul

Multitenant office space continues to fill up in downtown St. Paul as retail and residential development grows, according to a new report.

The occupancy rate for competitively leased buildings increased this year to 83.4 percent, the Greater St. Paul Building Owners and Managers Association said this week.

That is up from 82.3 percent two years ago and the highest level since 2001.

Last year, a lot of the growth in the occupancy rate was due to the conversion of less-desirable office space into residential buildings. But this year's uptick was more substantial because there wasn't as much shrinkage in the St. Paul market, said Joe Spartz, president of the association.

"In this case, [vacancy] dropped by more than the reduction of the universe so it had to do with additional leasing activity that has taken place," Spartz said.

Some of the largest changes to the office landscape in downtown St. Paul have been the addition of the Minnesota Senate Office Building, the Pioneer Press building going from office space to apartments and the conversion of the JAX building, which had been 60,000 square feet of artist studio space, into apartments.

What is not reflected in the report, which shows data as of August of this year, is some big office tenants will soon leave.

Cray Inc., which had occupied about 72,000 square feet of space at Cray Plaza (formerly Galtier Plaza) since 2009, will take its more than 350 employees to a new office tower at Mall of America in Bloomington by the first half of 2017. When I Work Inc. moved this month from the Drake Building in St. Paul to the Ford Center in the North Loop of Minneapolis.

Both Cray and When I Work will be upgrading from average Class B office space in St. Paul to more premier Class A buildings.

"It's difficult to find contiguous areas of Class A" office space in St. Paul, Spartz said. "You are going to see a demand for new A product out of there. The market is now at the point where it's asking for it."

In other news, occupied retail space has grown 9 percent this year compared to 2014, when BOMA first started surveying the retail market in downtown St. Paul.

The new Lunds & Byerlys grocery store helped that jump, but the restaurant industry is also playing a role. Eleven new restaurants grew restaurant square footage by more than 14 percent.

"From an observational standpoint, a big chunk of the retail coming in seems to be food- and bar-oriented," Spartz said.

Downtown St. Paul's residential population continues to grow. Based on a Maxfield Research, Inc. study, the total number of people living downtown has grown 74 percent from 2010 to 2016.