15 August 2023
A discount store might once have seemed an unlikely place to work a desk job. But in 2021, when business technology firm Loffler Cos. sought new space with combined office and warehouse capabilities, it found the shell of a Sam’s Club in St. Louis Park fit the bill. On a recent June afternoon, the building bustled with activity as employees filed through a line for taco Tuesday.
Corporate real estate manager Danielle Loffler emerged from the crowd to guide a tour of the space. As she pointed out windows that line the front of the former store, glass-walled offices that line a newly constructed mezzanine, and the many skylights, she noted, “As you can see we’ve got glass, glass, glass, glass. It’s letting natural light all the way through.”
The space is bright and open. There are no low ceilings or windowless rooms. This is all by design. Every portion of the warehouse-club-to-workplace redesign, guided by architecture firm Gensler, was conducted with the intent to entice workers back to the office. While the company requires all employees to come into the office twice a week, some employees choose to come in more, Loffler notes.
As companies work to create an appealing workspace amid employee shortages and the rise of hybrid work, Loffler decided early on that no stretch of the imagination went too far. The new space has a full-service gym on-site. Yoga and fitness classes are offered throughout the day. For employees looking to take a break or bond with their team over a game, there’s a Ping-Pong table and billiards in the common area and a small breakout room with a golf simulator.
A few years ago, amenities like these might have been viewed as above and beyond the industry standard, or specific to ad agencies and other companies fighting for young creatives. Now, as companies seek to maintain a competitive edge and lure workers back into the same space as one another, a higher bar has been set. Loffler is far from alone in its mission to build out an adaptable office that offers employees a one-stop-shop for the day.
With aging infrastructure and advancing technology, companies inherently faced a need to radically reevaluate how space would be used in the coming decade. Even before the pandemic. Though the number of people working at home has declined from its peak during the early days of Covid, about a third of workers still work from home on any given day.
While there has been plenty of buzz about how this has affected downtown business districts, the Twin Cities metro also has a robust suburban office footprint that is facing the same challenge.
Too much space
Vacancy in the overall Twin Cities’ office market increased in the first quarter of this year to 16.3%, up from 16.2% a year ago, according to a local real estate market report by Newmark. With 15 Fortune 500 companies headquartered in the metro and the presence of 320 more Fortune 500 companies, the total office space footprint in the area is massive.
A report by global commercial real estate firm Cushman and Wakefield estimates the Twin Cities metro area has a market of around 79 million square feet and had a total of 21.2 million square feet of vacant office space in the first quarter of this year, according to an April report by Colliers International; that is, about a quarter of the area’s office space was vacant at the beginning of the year.
Suburbs often appeal to companies in search of a corporate campus that can offer free parking, large open spaces, and maybe even outdoor features. And historically it has cost less to buy land or lease than in the core cities. However, the sprawling nature of these spaces is no longer a feature employers seek, as many of the area’s largest campuses teeter closer to the descriptor, empty.
There are already plenty of examples of companies downsizing footprints. Months after Thomson Reuters put around 1 million square feet of its massive Eagan campus up for sale, the Toronto-based legal and financial services giant announced it would move to just over 300,000 square feet of suburban office space by 2024; that’s less than a third of the space it currently occupies, though the company’s print manufacturing facility on its current campus won’t move or be sold.
Its current facility was already low-density before Covid, explains Tom Walrath, vice president of real estate and facilities. This worsened during the pandemic. “When you have a big building and there’s vacancy, people just aren’t interacting with each other,” which defeats the point of officing in person together, he says.
It’s important to note that land use is always evolving, says Jill Hutmacher, director of community development for the city of Eagan. “This is actually a normal thing. This is just a point of time.”
Hutmacher points to the former Lockheed Martin site, which closed in 2010 and was later converted to the Central Park Commons mixed-use retail center. The center includes retail, restaurants, and even a medical office. Then there’s the former Northwest Airlines headquarters (also in Eagan), demolished in 2018 and now the 200-acre Viking Lakes campus, which houses the Omni Viking Lakes Hotel, Twin Cities Orthopedics clinic, and the Minnesota Vikings headquarters and training facilities.
Even Thomson Reuters’ move is into a space that’s been reimagined. The site briefly served as the headquarters of Eagan-based Prime Therapeutics, which put a large portion up for sublease last year when that company also found itself with too much space. The city is happy Thomson Reuters, with its 150 years of history in Minnesota (mostly as West Publishing), didn’t leave the municipality altogether, Hutmacher says.
As for the Thomson Reuters site, it’s likely it will not return to office space. Hutmacher views this change as “an opportunity for the city.” She says she looks forward to seeing what it will become.
Low demand even for Class A space
These moves are examples of a nationwide trend. In the next decade, average square footage per employee in the U.S. is expected to decline from 190 square feet to 165 square feet, leaving an excess of 330 million square feet of vacant space, according to a recent study by Cushman & Wakefield.
The building is attractive in many ways, but Dan Gleason, executive managing director for Cushman & Wakefield’s team helping sell the current UHG campus, says demand for that much office space in the southwest suburban office market just isn’t there right now.
The state’s record-low unemployment also exerts downward pressure on the commercial real estate market, according to Gleason. “A company looking to move into Minnesota looks at our unemployment rate [and] says ‘Oh my goodness, where am I going to get employees even if we grow?’ It’s too tight of a market for us.” Companies facing a shrinking pool of employees are also less likely to mandate workers return to the office, he notes.
Gleason works with other properties across the metro, many of which—unlike the UnitedHealth campus—are multitenant properties, such as Normandale Lake Office Park in Bloomington. He says these properties benefit from their adaptability in size and the shared amenities between tenants.
Determining vision
This leaves many corporations puzzling over the future of their office environment. Deanne Erpelding, managing director for Gensler’s Minneapolis office, says there is no one-size-fits-all solution. “When we go on that journey with clients, it’s profound what we find, and it truly is tailored to the culture of their business.”
Gensler kept this in mind when designing Loffler’s space. Most employees don’t have assigned desks, but there are plenty of spots to choose from. Conference rooms are available in a range of sizes. A portion of the main space is open and can accommodate 400-plus employees for events and happy hours. Movable tables line the room, and permanent bleacher-like steps offer alternative seating options that work well for company-wide meetings or town halls.
An office redesign has to tell a story. In the case of the Loffler redevelopment, Erpelding says it’s a story of reuse and sustainability that said, “Instead of just tearing this building down, let’s invest in our community.”
Adaptability for longevity is also considered key to keeping an office viable for a long time. “We’re not just thinking about the next year. We’re thinking about the next decade,” Erpelding says.
This rings true for one of the area’s most storied campuses. General Mills has no plans to leave its Golden Valley corporate headquarters. With 150 years in the Twin Cities—about 100 of those in Golden Valley—chief human resources officer Jacqueline Williams Roll says the company is committed to staying put.
General Mills is particularly well positioned because it already has many of the amenities other campuses are seeking. The company recognizes the role its campus plays in the lives of employees, Williams Roll notes. For example, it has offered on-campus child care for more than two decades.
This didn’t stop even during the pandemic, during which the company also updated and improved its facilities. “As we thought about the future of work, what we knew to be true is that when people did eventually come back to the office, they’d want more collaborative space, they’d want contemporary space,” Williams Roll says.
The $900 billion question
A daunting question remains. What happens to outdated buildings whose owners may not be able to keep them leased?
In 2022, national law firm Ballard Spahr launched a “distressed office” team to address this very issue as potential clients face the possibility of mortgage defaults. It found that U.S. office owners will owe about $900 billion by the end of 2024. By 2026, debt could rise to over $1.5 trillion.
Building owners with mortgages who are renting to tenants are in a tough spot. For many, debt has accrued from capital projects started before the pandemic. Now it’s a gamble to bank on tenant stability or that their buildings are competitive anymore, notes Karla Vehrs, office managing partner for Ballard and a member of the distressed office team.
Asked how she pictures these campuses will look a decade from now, Vehrs pauses for a long moment, then laughs. “You know, that’s the $900 billion question, isn’t it?”
CASE STUDY: Recycled
Loffler
Loffler, a family-owned company, was prepared to get creative when it began looking for new space in 2020. And creative it got. In early 2021, Loffler bought a 159,000-square-foot former Sam’s Club in St. Louis Park. The company was searching not only for office space, but also seeking a new site for its warehouse. Now, Loffler uses about half the St. Louis Park space as a warehouse and the rest for offices. It plans to lease out about 15,000 square feet to other tenants.
Location: 3745 Louisiana Ave. S., St. Louis Park
Owner: Loffler
Occupant: Loffler
Size: 159,000 square feet on 13 acres
CASE STUDY: Downsized
Thomson Reuters
In January, the company put 179 acres of its 263-acre Eagan campus up for sale, opting only to keep its printing operation in the remaining acreage. Since then, Thomson announced it will sublease more than 300,000 square feet at a property known as “The Landing” in Eagan. The fate of the enormous office structure remains unclear.
Location: 610 Opperman Dr., Eagan
Owner: Thomson Reuters
Occupant: Thomson Reuters
Site: 1 million square feet on 263 acres
CASE STUDY: Tried-and-True
General Mills
While many corporations are looking to move to smaller spaces, General Mills has said it will stay where it’s been for decades. The campus benefited from pre-Covid renovations. Workers have not been given a strict mandate to return to in-person work, but the huge Golden Valley-based employer is working to entice them back with amenities like flexible workstations, walking desks, a 24/7 gym, on-site coffee, food options, and more.
Location: 1 General Mills Blvd., Golden Valley
Owner: General Mills
Occupant: General Mills
Site: 885,000 square feet on 85 acres