When the city of St. Paul initially decided to stimulate downtown growth by pushing new apartments, many were skeptical, says Mary Bujold, president of Minneapolis-based Maxfield Research and Consulting.
But now downtown is improving in every real estate sector, according to the Greater St. Paul Building Owners and Managers Association’s most recent market report, released Monday. Offices are being rented, retail space is filling, the number of hotel rooms has jumped in the past year and significantly more people are calling downtown home, according to the report.
The success of the once city-owned Penfield, a 254-unit luxury apartment complex in downtown that opened in 2013, showed developers that people were interested in living in the city’s urban core, Bujold told real estate professionals Monday at a St. Paul BOMA meeting.
“Everybody was probably a little worried about whether or not downtown St. Paul could really handle a lot of additional housing units,” she said. “I think especially when The Penfield came on line … it proved that more people wanted to live in downtown.”
Between 2010 and 2016, residential units in downtown St. Paul grew from 4,873 to 6,024. Meanwhile, the population in the urban core has grown 74 percent from about 4,860 residents in 2010 to about 8,400 today, Bujold said.
But with the exception of empty-nesters looking to relocate in walkable urban areas, much of that pent-up housing demand in downtown has likely been absorbed, Bujold estimated.
That opens a new opportunity for the city to focus on more jobs, office space and retail growth, she added. According to the BOMA report, St. Paul is making strides in those areas, too.
Office vacancy down
The overall competitive office space vacancy rate is down this year to 16.6 percent — the lowest it has been in 15 years, St. Paul BOMA President Joe Spartz said in an interview.
While Class B and Class C office vacancy rates shrank, Class A office space has a higher vacancy rate than it did a year ago. Class B vacancy rates dropped from 19.7 percent in 2015 to 17.6 percent today. Class C office vacancy rates moved from 14.7 percent last year to 12.85 percent currently.
One reason Class A competitive office vacancy grew from just under 14 percent a year ago to 15.1 percent in this years’ annual count is due to the lack of contiguous Class A space in the city, Spartz said.
“It’s difficult for potential interested parties to identify the square footage they are going to need in the marketplace, so … what we might need is additional product now in terms of Class A space,” Spartz said.
Some companies are moving out of downtown because they couldn’t find contiguous space. Among them is When I Work, a local software company that is relocating to Minneapolis because it is expanding and needs more space. Seattle-based supercomputer company Cray also is relocating from its downtown St. Paul offices to The Offices at MOA in Bloomington.
Redevelopment that includes high-quality office space in sites like the old Macy’s building at 411 Cedar St., and the Ramsey County-owned riverfront property will help fill that need, Spartz said.
Retailers, hotel rooms rise
For the first time, the group also tracked used retail space and the hotel market.
Since 2014, the number of retailers has grown slightly but the amount of space taken up by retail has jumped by about 100,000 square feet. Today, 288 retail-oriented businesses and restaurants – up from 275 in 2014 – are in 1.26 million square feet of space compared with 1.16 million square feet two years ago. The growth isn’t surprising, Spartz said.
“As you get more people living in the downtown area, it is going to be impacting the demand for retail,” he said at the event.
That has proved true for developers like Minnetonka-based Opus Development Co., which is redeveloping the former Seven Corners Hardware site at 216 W. Seventh St. into a 191-unit luxury apartment building with more 11,500 square feet of retail space.
The company just finalized an agreement with New Bohemia Wurst and Bier Haus, Matthew Rauenhorst, vice president at Opus Development Co., said during a panel discussion at the event.
As Opus looks to fill the rest of the space, it wants tenants who will draw people to the area and offer resident services, he said.
“We want to be able to offer amenities to renters and the West Seventh district, so that is the challenge we are looking at,” Rauenhorst said.
Hotel rooms are also on the rise. Since St. Paul BOMA started gathering data for the latest report and this Monday, 300 rooms were added to its count, Spartz said. Today, St. Paul has nine hotels with a total of 1,808 rooms that are open or will open in the coming months.
The new retail and hotel numbers were added this year to tell a bigger story, Spartz said.
“It’s included as part of what’s going on in downtown St. Paul and how it is changing,” he said.