Office Market on Course for Record Sales Year

Deal flow in the overall office investment market is on the upswing, putting the Twin Cities on track to see a record number of sales transactions in 2007.  Investors purchased 1.5 million square feet of office space in 56 office buildings during the past 12 months. Total sales volume during that period was $1.9 billion. The average weighted cap rate for all office building sales was 6.57% in the Twin Cities, versus a national average cap rate of 5.77%, according to Real Capital Analytics. 

Total dollar volume is down slightly over the past six months, however, due primarily to fewer sales of office towers in the Minneapolis Central Business District (CBD). Activity remains strong in the St. Paul CBD, however, with several major properties currently on the market—even after the sale of two significant office buildings during the first half of the year. Sales of suburban office properties are particularly strong.

Overall, pricing continues to rise above historically high levels, buoyed by continued strengthening in market fundamentals such as declining vacancy rates and rising rental rates.