Target is officially checking out of a large portion of its offices in downtown Minneapolis.
The company, primarily based out of the Target Plaza elsewhere in downtown Minneapolis, is paying $110 million to prematurely terminate its deal for nearly 1 million square feet in one of the city’s most prominent office towers.
Target moved out of the 51-story City Center tower in 2021, but the company last month officially broke its lease in a move that has prompted the property’s owners to list it for sale, according to a loan servicer report.
Combined with Target’s exit, the mixed office and retail tower now has more than 950,000 square feet of vacant space on the market, a level of availability that lands at a point when Minneapolis’ office market is already struggling to establish its post-pandemic footing.
Target has been footing the bill for its space in the high-rise at 33 S. Sixth St. as part of a renewal agreement it signed in 2015 that, up until earlier this year, still had a decade left before its expiration.
Neither the landlord, an affiliate of electronics conglomerate Samsung, nor Target immediately responded to CoStar News’ requests for comment.
Minneapolis’ office woes
The retailer had anchored the 1.6 million-square-foot tower since its Minneapolis debut in the early 1980s, yet its presence both in the property and elsewhere across the city fell victim to the early impacts of the pandemic when Target made a series of moves to reduce its real estate presence.
Target in early 2021 told employees the company would be ditching its City Center space, a decision executives attributed to its experiment with remote work. About 3,500 workers who had previously commuted to the downtown tower were instead told they could continue working from their homes.
While the company walked back its remote and flexible work policies last year, its decision to dump the tower from its Minneapolis real estate portfolio only solidified. Corporate employees who are now required to report to an office at least three days a week are instead heading to other downtown properties Target operates around its Nicollet Mall headquarters.
Similar to other cities across the country, Minneapolis has struggled to regain the momentum it needs to address record-high vacancies and stagnant demand.
Combined with residual impacts of the pandemic, civil unrest over the past several months has compounded those challenges, creating an environment of uncertainty that local stakeholders say is hardly appealing to tenants or buyers looking to invest in Minneapolis’ office market.
Once listed, City Center tower will hit the market at a point when the vacancy rate downtown has surged to nearly 23%, according to CoStar data. Companies such as Target offloaded about 1.2 million square feet of space more than they took on over the past year, and landlords eager to offload troubled properties have faced severe valuation drops amid the depressed demand.
Only $91 million worth of deals have closed over the past year, CoStar data shows, a steep decline from the $401 million annual average over the past decade.