Firms shifting from suburbs to downtown

The allure of the big city is pulling at businesses that previously called suburban office parks home.

Firms that provide accounting, tax, legal and other services have moved to downtown Minneapolis in recent years, taking advantage of competitive rents and space freed up as larger employers downsized.

The urban setting offers an important advantage for services firms that have moved, including Eide Bailly and McGladrey. Impromptu encounters between business folk often occur in the skyway, on Nicollet Mall, at lunch hot spots or in downtown's after-hours watering holes. They're the kind of impromptu meetings that rarely occur in a suburban office setting.

"You want to be at the center of influence, and in Minnesota that's downtown Minneapolis," said Jeffrey DeYoung, office managing partner of Baker Tilly Virchow Krause, an accounting, tax and advisory services firm. "You bump into people in the skyways who you know, you shake hands, and the next thing you know you're having a cup of coffee and doing a deal."

It's unclear how many firms have moved from the suburbs to downtown, reversing the typical migration of decades past.

Baker Tilly moved a little over 200 people from Bloomington to Capella Tower in Minneapolis in the throes of the economic downturn and never looked back. "I think if I told our people we're moving back to Bloomington, they'd tar and feather me," DeYoung said.

Last year, the Minneapolis central business district recorded 116,000 square feet of positive absorption of office space -- the rate at which rentable space is filled -- according to a report released in January by Cushman & Wakefield/North Marq.

It was the second consecutive year of absorption growth, leading the real estate services firm to conclude that Minneapolis is experiencing "renewed momentum" in what is still a very challenging office market. The overall vacancy rate for the city's core declined to 18 percent, and was 13.2 percent for top-tier Class A office space, the report said.

Downtown Minneapolis is home to several large employers, including retailer Target Corp. and Wells Fargo Bank, which together employ about 19,500 people downtown. These behemoths inevitably attract a web of firms that provide tax, accounting, marketing, legal and other services.

"Large companies locate here, then a second tier of companies follow for commerce or to serve the larger ones, and they're followed by another tier who want to be where the action is," said Sam Grabarski, president and CEO of the Minneapolis Downtown Council, in an e-mail.

It's unclear whether the same nascent phenomenon has hit St. Paul, although "we are definitely seeing more businesses from suburban areas taking a look at downtown," said Matt Anfang, president of the St. Paul Building Owners and Managers Association.

Last year, "it was let's-chase-the-better-deal time" among large-scale office tenants in the St. Paul central business district who were eager to swap landlords and space, according to the Cushman & Wakefield/NorthMarq report. Still, Class A buildings in the capital city held their own with a direct vacancy rate of 17.9 percent -- below the market-wide average, the report said.

As is often the case in the real estate game, location and accessibility are key.

"Employers want to be where employees are," said Brent Erickson, senior director of brokerage services at Cushman & Wakefield/NorthMarq. "They also want to be in locations where it's easy for employees to get to."

Those who have made the switch say communicating with employees early and often is the key to a smooth transition and employee retention, especially since experts say a move can cause up to 30 percent of the workforce to leave. Usually, key concerns in a downtown move include the cost of parking and fears about safety, generally not huge issues in the 'burbs.

Earlier this year, Eide Bailly moved its offices -- and about 100 employees -- from Bloomington to the U.S. Bancorp Center at 8th Street and Nicollet Mall.

"It really was an opportunity to connect with more of our peers, law firms, investment firms," said Kim Hunwardsen, a partner at Eide Bailly. "It's easier for networking and making connections. It takes more of an effort to do that in the suburbs."

To allay fears, Eide Bailly educated workers on how to sign up for Metro Transit passes and on parking options. Some employees hadn't been downtown for years, so the firm held a scavenger hunt involving different landmarks, such as the Mary Tyler Moore statue on Nicollet Mall.

"This helped people visualize the setting," Hunwardsen said.

Increasingly, employees actually live downtown -- today some 34,000 residents live in Minneapolis' core. And several employers who have moved downtown say the location is a key to attracting younger employees.

The Minnesota High Tech Association is moving its nine-employee office from Roseville to the Grain Exchange building downtown, on the same floor as the CoCo collaborative work space on the exchange's historic trading floor. The group traded office space near the Old Dutch potato chip plant for a unique space in proximity to where techies and entrepreneurs congregate.

"We thought, 'Wow, this is where things are happening,'" MHTA President Margaret Anderson Kelliher said.

Janet Moore • 612-673-7752