There is little disagreement about the economic importance of Minneapolis to the metro area and the rest of Minnesota. And there’s no disputing that the city’s most economically vital area is downtown. While that small, vital section of the city enjoyed prosperity for much of the 21st century, the good times came to a screeching halt about a year ago with the onset of the pandemic.
Minnesota Monthly recently examined the impact of the pandemic on commercial properties and life downtown.
Big, beautiful downtown
Since the 2000s, downtown Minneapolis has been transformed by new sports venues – Target Field and U.S. Bank Stadium – as well as the renovations of Nicollet Mall and Target Center, and the additions of architectural eye-candy such as the Guthrie, the library and the expansion of the Walker Art Center.
In the past dozen-plus years, downtown has also buzzed with business and excitement generated by clubs, restaurants, luxury hotels and more.
Downtown has undergone another transformation, however, over the past year. The coronavirus pandemic has wrung much of the life out of the area that used to hold more than 200,000 white-collar workers.
According to the Minneapolis Downtown Council, the return of the area’s workforce has been slow: just 16.1 percent are back at work in downtown’s largest buildings. Hotel occupancy is at 19 percent and light-rail ridership is less than half of what it was before the pandemic’s arrival.
About a year after that arrival, the city’s economic engine is quiet, Minnesota Monthly pointed out. The implications of its stillness are enormous, the publication points out, as about a third of city and public-school system revenues come from property taxes, with top-tier commercial properties taxed heaviest.
The publication highlights a remarkable statistic from the Downtown Council: 40 percent of the city’s property tax revenues are from commercial property taxes levied in the 3 percent of the city’s land mass that is the central business district.
“The central business district is the economic engine for the entire metro area,” said Kevin Lewis, president of the Building Owners and Managers Association of Greater Minneapolis. “It’s the economic engine for the entire state of Minnesota. That doesn’t place any less value on other destinations in the state of Minnesota. Merely from a financial and economic standpoint, it is a major contributor.”
Steve Cramer, Downtown Council president, said downtown boomed over the past decade-plus in which property values increased, rental rates rose, the number of employees in the area multiplied and the residential population grew.
“So it has been a good ride,” Cramer said. “The ride came to a crashing halt,” adding that it’s in everyone’s best interests “to try to get downtown revved back up.”
One of the signs that the city has ground to a halt is the convention center – normally packed year-round with travelers who spend money in Nicollet Mall and on Hennepin Avenue – has been shuttered, costing the city $1.2 billion in visitor spending.
Hospitality-sector businesses have paid a heavy price, with some restaurants and coffee houses gone and a number of hotels temporarily shut down.
Signs of better things to come
Despite the abundance of bad news, there are green shoots of good news, too. Minnesota Monthly highlighted the story of a chocolate maker who seized the opportunity of lower rent generated by pandemic to move her business from Wayzata to downtown Minneapolis.
Upscale apartments are also wooing renters with a month or two of free rent and condo sales are being boosted by price reductions tens of thousands of dollars on brand new condominiums.
None of the biggest companies have said they’re leaving – for now.
Lewis, of the Building Owners and Managers Association, said, “We feel that the commercial real estate industry is still a strong entity and will continue to be in the future.” He concedes that “adjustments” are being made, but that in general, companies are assessing their options for re-entry and development projects are likely in a holding pattern as the nation begins to regain confidence as the numbers of vaccinations continue to grow rapidly.