Economic Overview:
The Minneapolis–St. Paul economy showed signs of cooling in Q3 2026. Nonfarm employment held at just over 2.0 million workers, while the local unemployment rate climbed 30 basis points (bps) year-over-year (YOY) to 4.1%. At just 10 bps below the U.S. average of 4.2%, the gap between local and national labor market conditions narrowed, reflecting a departure from the metro's longstanding pattern of outperforming national employment trends.
Supply: Vacancy Declines As Obsolete Space Exits
The overall vacancy rate fell to 27.0% in Q3 2026, declining 20 bps quarter-over-quarter (QOQ) and 80 bps YOY. The decline continues to reflect the ongoing removal of aging product from the competitive inventory, as evidenced by a 266,624 square foot (sf) reduction in inventory for the quarter. While headline vacancy remains elevated, functional availability continues to tighten as demand concentrates in well-located, and capitalized buildings. Construction activity remained unchanged for the quarter at 339,000 sf, concentrated in the Northeast and Southwest, with tentative completions set for year-end.
Demand: Tenants Remain Selective Amid Positive Absorption
Overall absorption totaled 57,817 sf in Q3 2026, marking the second consecutive positive quarter after negative absorption in Q4 2025 and Q1 2026. Year-to-date (YTD) absorption of 102,351 sf was 54.8% below the same point in 2025, even as YTD leasing activity reached 2.2 million square feet (msf). Notable lease transactions in Q3 2026 included the Minnesota Department of Natural Resources leasing 124,520 sf at 10 River Park Plaza, while CBRE leased 27,265 sf at 1 Meridian Crossings. Class A space accounted for 64.1% of quarterly leasing activity, up from 60.1% in Q2 2026, underscoring tenants' continued preference for high-quality space.
Investment Sales: Activity Rises Amid Continued Caution
Investment sales activity picked up in Q3 2026, though buyer selectivity remained high. Enverra Real Estate Partners acquired the 512,814-sf West End Office Park from Bridge Investment Group for $85.3 million. In the Northeast, Hawkline II acquired the 68,737-sf Long Lake Executive Center from Atwater for $9.25 million. In addition to individual sales, the St. Paul CBD saw fresh capital directed at downtown revitalization, including $30 million from Securian and $15 million from the Downtown Development Corporation.
