Laura Russ, executive director of the Shenehon Center for Real Estate at the University of St. Thomas, spoke with MPR News about declining commercial property values across the Twin Cities and what the trend could mean for communities. Russ discussed how falling office building values reflect long-term changes in the commercial real estate market and how cities may need to rethink development, property uses, and tax strategies as they adapt to evolving economic conditions.
From the conversation:
Catharine Richert: Now Laura, Minnesota has a lot of headquarters based here, a lot of corporate and office spaces. If all of these spaces are now worth a little less, what does that mean for how cities need to think about their tax base going forward? Are they thinking about how they might, for instance, convert office buildings into something else so they’re more valuable than they are right now?
Russ: I think that’s an important point as we look toward, how do we adapt to this? Minnesota does traditionally have a legacy of a lot of corporate headquarters here, which is a positive thing and remains a positive thing.
It doesn’t necessarily mean that we have more office space because we have corporate headquarters. It just means that we have a diverse economy. That diversity of economy is an important strength, because those headquarters are not just in one industry. They’re in a number of different kinds of industries. And as Josh said, each of those types of uses contribute something differently to the tax base.
Another thing that we have done more in the last few decades is integrate more of our areas with various kinds of property classes. So downtown is no longer just office space. It includes a good chunk of housing. And as we move forward and as we clear out a lot of this excess inventory, that is absolutely what communities and building owners and developers should be looking toward. How do we adapt this space? How do we convert to uses that the market is asking for more of rather than less of?
Richert: Now looking around the state, Laura, are you seeing anything very creative, cities that have taken an older building and just turned it into something that really fit the community’s needs?
Russ: We have seen that really across the state, particularly in our major metro areas. Both downtown Minneapolis and St. Paul, as well as Duluth, have used historic tax credits and other incentives to attempt to do some conversions of space. That is a difficult endeavor.
