Over the past decade, the draw of downtown living has only grown more popular in hip cities such as Austin, Dallas and Atlanta. In fact, a survey of 24 cities by the International Downtown Association found that from 2010 to 2016, the most popular destinations averaged residential growth rates of 37 percent.

Downtown St. Paul leaves those stats in the dust. In the same time period, the residential population downtown grew almost 74 percent. Even fresher numbers from Maxfield Research now confirm that the pace of residential growth — and the pace of conversions from low-end commercial buildings to high-end residential buildings — has yet to let up in Minnesota’s capital city.

Between 2010 and 2019, St. Paul’s downtown population has more than doubled, growing 102 percent, or from 4,900 to 9,845 people. The number of apartments grew 70 percent in the same period. But those gains mask some pains elsewhere — namely, in the office market.

Residential growth remains a bright spot for a downtown that has weathered some significant job losses. With employers like Cray, Inc., a supercomputer company, leaving St. Paul for Bloomington and other suburbs over the years, office occupancy rates remain mixed at best, and the total amount of square footage devoted to office uses continues its gradual decline.

Last week, the Greater St. Paul Building Owners and Managers Association unveiled its 25th annual Market Report, a 19-page, building-by-building analysis of downtown’s office market. Together with an accompanying release from BOMA, the report also delves to varying degrees into health care, government, sub-lease and residential uses.

FROM OFFICE TO HOME

Key take-aways? Not all that much has changed year-to-year within the universe of downtown office buildings, at least in terms of net occupancy. The recent loss of some leasable office space in Landmark Towers and the First National Bank Building, on top of the complete removal of office space from the Ecolab University and Empire Buildings, has over the past year reduced the total square footage available. Popular Articles ‘It’s devastating’: Harassment of COVID public health workers is widespread and ‘unprecedented,’ officials say.

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In addition, the old Pioneer Press building on Cedar Street was converted last year into the Press House apartments. Overall, about 200,000 square feet of office space — most of it fairly low-end office space — has become residential in recent months.

Those office losses were offset in part, however, by the conversion of the old Macy’s Department Store building on Wabasha Street into Treasure Island Center, which has eight levels of office, retail and athletic space, including a practice rink for the Minnesota Wild and other partners.

DECLINING TAX BASE?

Overall, downtown St. Paul is home today to 15.4 million square feet of office space, down a tick from 15.65 million square feet a year ago and, more significantly, from 17.38 million square feet in 2010. About 32 percent is government workplace (it is the state capital) and 20 percent is owner-occupied. The remaining 48 percent (7.4 million square feet) is “competitive,” or up for grabs in the private marketplace. Those percentage splits have held steady over the last decade.

Office vacancy rates in downtown St. Paul hover around 10 percent — a number that has also held fairly steady in recent years, and is about average for downtown areas nationwide, according to BOMA officials. But take government workplaces and owner-occupied buildings out of the equation, and the news is a bit starker.

The vacancy rate in the “competitive” office market is 21 percent, up a tick from 19 percent a year ago. That may not sound like a huge change, but it’s change in the wrong direction for downtown business boosters.

That’s because cities count on their downtowns to be large revenue generators, offsetting lower property taxes for residents and small businesses elsewhere in the city. For a variety of reasons, from tax increment financing districts to occupancy rates and building conversions, that’s less true in St. Paul than in other prime destinations. But that’s hardly set in stone.

Also last week, officials from Minneapolis-based AECOM — the developers proposing the four-tower Riversedge project on county-owned land along Kellogg Boulevard — said downtown St. Paul lacks contiguous, high-end office space with large floor plates, ample parking connected to retail amenities, and other modern offerings. They said the lack of 150,000 square foot vacancies is a key concern holding back large employers.

They aim to help change that situation.

AECOM has said once it completes two towers of residential (apartment, condo, hotel) construction, it will build two larger skyscrapers spanning 950,000 square feet of office space and about 20,000 square feet of retail between them. The developer has asked for $80 million in public subsidy to complete nine acres of “public realm,” including pedestrian paths zigzagging 80 feet from the Kellogg Boulevard bluffside to the edge of the Mississippi River.

MORE CLASS B, LESS CLASS C

Under pressure from the national Building Owners and Managers Association, Greater St. Paul BOMA revised how it lumps office uses into high-end, medium and low-rent categories to be more consistent with BOMA’s national approaches. As a result, the total amount of “Class A,” or premium space, did not change, but the amount of “Class C” space dropped significantly and “Class B” space increased in step.

In other words, downtown now has more average offerings for businesses, and fewer low-end ones, at least according to official classifications. In the competitive market, vacancy for Class A space remains relatively stable from year-to-year, growing little more than a percentage point to 19 percent.

Vacancy for Class B space now sits at almost 27 percent, up from almost 20 percent a year ago. For Class C, it’s 9 percent, down from 21 percent a year ago. Related Articles Google parent agrees to $310M misconduct lawsuit settlement

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“While there has been significant loss of office space in downtown over the past decade, it came from a variety of sources beyond just competitive,” said Greater St. Paul BOMA President Joe Spartz.

“The loss of space in the competitive market is natural attrition in B and C. What St. Paul hasn’t done effectively is replace this lost space with new A product. This will be changing over the next few years as some new projects are completed.”

More information is online at bomastpaul.org and spdatasource.org/annual-office-market-data.