Office vacancy in downtown St. Paul exceeds 21%, highest in years

The office-vacancy rate in downtown St. Paul has ticked up to its highest level of the past decade.

Competitive office buildings in the capital city are 21.1% empty, an increase from a vacancy rate of 19.1% last year and 17.9% in 2010, according to the annual report by the Greater St. Paul Building Owners and Managers Association (BOMA).

BOMA attributed the overall increase in vacancy in part to more space opening up in middle-market Class B office buildings.

"There really aren't too many surprises in the competitive market data," said Joe Spartz, president of Greater St. Paul BOMA. "With Ecolab University being removed, Ditech closing, and a few other changes, we knew there would be some negative absorption."

The amount of occupied competitive office space declined by more than 257,000 square feet from 2018 to 2019, known in the industry as negative absorption.

One of the biggest negative effects on the market was the closure earlier this year of Ditech Financial LLC's offices, which had 210 workers in Landmark Towers.

Some of the negative absorption is also due to office space being converted into other uses, such as about 200,000 square feet coming offline at the First National Bank building to make way for apartments and the removal of the Ecolab University Center building for a planned redevelopment.

In the 25 years that the Greater Saint Paul BOMA has researched building data, downtown St. Paul vacancy rates have fluctuated.

And the competitive office space (that which is not owner-occupied or used by the government) has shrunk from 8.6 million square feet or 59% of total office space in 1995 to 7.4 million square feet or 48% of total office space.

"It reached its peak probably about right before the recession," Spartz said. "Since then it's slowly been trailing off."

Over the years, Class B office space has been converted into apartments which has helped increase the number of downtown residents. The BOMA report referenced a study by Maxfield Research Inc., that found that the number of residents had more than doubled since 2010, to 9,845, as the number of apartments increased by 70%.

While there is concern from some in the commercial real estate industry about too much office space being converted, Spartz said he is optimistic that new office space will be built to supply the market.

"In the long run, what you are going to see replacing the converted square footage will end up being new Class A office space," he said.

Ramsey County officials are working with developer AECOM on a plan to build a $788 million redevelopment dubbed Riversedge on the bluffline above the Mississippi River in downtown. The plans include a hotel, housing, retail and office space in four towers.

There is also redevelopment potential at the site of the closed Sears department store on the outskirts of downtown as well as on top of or next to the aging RiverCentre parking ramp, though plans haven't been announced.