Office renovations pick up in downtown Minneapolis and St. Paul

It's hard not to notice the taped-off corridors and the men and women in hard hats and neon vests in the office buildings of downtown Minneapolis and St. Paul these days.

Just as motorists encounter construction on Twin Cities roads in the warmer months, a similar flurry is happening in the cities' most-trafficked office towers.

The office market has changed dramatically in recent years. Tenants are more concerned about amenities and resources in a building rather than how tall it is, said Reed Christianson, a partner at Transwestern.

"It's really about inside-out on a building and not outside-in. … It has to be about what you have in your building," he said.

According to a quarterly report released last month by the local office of Colliers International, the vacancy rate in the Twin Cities office market is 15.3 percent, an increase from 14.5 percent that the firm recorded in the fourth quarter of last year. The direct vacancy rate in the downtown core in Minneapolis is 19.7 percent. Class A buildings, the highest tier in terms of building quality, have a vacancy rate of 12.9 percent, however.

Many buildings are undergoing renovations to add Class A level amenities, attract tenants and lift rental rates.

A new phase of such work recently started on RSM Plaza, the 20-story skyscraper that sits at Nicollet Mall and 8th Street.

In 2015, Chicago real estate investment firm Golub & Co. and Los Angeles-based Oaktree Capital Management purchased the skyscraper for $78.3 million and said they would spend $10 million to renovate it.

"I would say it was a great location, but we were lacking some of the amenities," said Golub property manager Jared McKie.

Plans call for a focus on the building's Nicollet Mall entrance and the creation of a new two-story lobby. A new restaurant will take the place of the first level of what, until recently, was a Barnes & Noble store. The store's second level will be divided for several retailers. On another side of the building, Panera Bread's outdoor eating patio will become a pocket park for tenants.

The area where the skyway connects from the IDS Center will also be extended along 8th Street to provide access to the new retailers. The reconfiguration will allow the space, which is currently disjointed from the rest of the building, to be better connected. Also, the west tower elevators will now be directly connected to the skyway.

RSM has already completed other improvements in a previous phase of the renovation including converting some space on the fourth floor into a fitness center as well as carving out space on the fourth floor for a conference center.

"If you want to compete in the full-service office market, you need to have these amenities. … We didn't design a box checker. We designed a differentiator," said Brent Robertson, a managing director with JLL, the office leasing agent.

After Wells Fargo moved its staff from Baker Center to its own offices near U.S. Bank Stadium last year, building owner Travelers Cos. took the initiative to refresh the building.

On Thursday, Baker Center will have a grand unveiling of its renovations, including a new entrance at the corner of Marquette Avenue and 8th Street. The entrance will feature a glass curtain wall that will showcase the building's new, two-story lobby.

Baker Center's new top-level amenity floor has conference facilities, a Steele Fitness center and a rooftop patio. Other upgrades in the renovation include new flooring and lighting, which has brightened the building's skyway level.

"It's becoming much more like a boutique hotel and more of a residential feel, a place where you can live, work, and play all at the same building," said Christianson, who is part of the Baker Center leasing team.

There are several other buildings that are still in the process of renovation including the former TCF Bank Building, LaSalle Plaza and the former Macy's building — which is being converted into office space. Fifth Street Towers is scheduled to be done with its large renovation by the end of August that will give it "more of a hospitality feel," said Erin Wendorf, vice president of office leasing for Transwestern. The building will offer tenants perks such as a rooftop deck and a skyway-level bar and lounge.

In downtown St. Paul, work is underway too.

Last week, several partners and government officials were on hand for the ceremonial groundbreaking at the 428, the former Woolworth building that has sat vacant for years at 428 Minnesota St. near the DoubleTree hotel.

The building is being expanded to include a fourth floor plus a rooftop workspace and outdoor patio. The plans for the 65,000-square foot building are for it to offer traditional office and co-working space.

"We are just totally thrilled about attracting new jobs," said Pat Wolf, owner of Commercial Real Estate Services, which is leading the development.

The building, which is expected to be completed by next summer, is being built to spec, meaning that it is being constructed to be used by different types of tenants without a particular tenant actually secured. There are only a few office buildings that have been constructed recently without signed tenants.

The 428 will help revitalize a critical gap in the city between the popular Lowertown and Rice Park areas, said St. Paul Mayor Chris Coleman.

"This truly is filling in that middle piece," he said.

Nicole Norfleet • 612-673-4495

Twitter: @nicolenorfleet