2040 Comprehensive Plan: Envision Shakopee

OFFICE SPACE

THE CITY HAS SEEN MODEST OFFICE RENT GROWTH, WHICH HAS KEPT PACE WITH RENTS IN THE OTHER TWIN CITIES’ SUBMARKETS, BUT REMAINS LOWER THAN MORE ATTRACTIVE OFFICE LOCATIONS IN THE SOUTHWEST SUBMARKET. FIGURE 2.11 - OFFICE RENTS COMPARISON

Shakopee are usually related to Shakopee’s industrial businesses and are taking place within the same building, rather than in a designated office building. This is a type of “front of house operations” (see strategies for this section for further discussion). Examples of this include Emerson Automation Solutions, Entrust Datacard, Shutterfly and Bayer CropScience. The city has seen modest office rent growth, which has kept pace with rents in the other Twin Cities’ submarkets but remains lower than some cities in the Southwest market, such as Eden Prairie or Edina. These communities differ from Shakopee because they offer well- known regional brands, a history of executive residences and locations closer to the MSP airport and the Minneapolis and St. Paul downtowns. Shakopee’s office market’s small size exposes the city to high market volatility. For example, QLogic’s 2006 building was the only large new office space in Shakopee in the past decade. However, Shakopee’s office vacancy soared to 10% when Qlogic downsized in 2017. Low market activity in Shakopee’s office market indicates the regional development community’s lack of confidence in speculative office development in Shakopee. Interviews with developers indicated several barriers to office development in Shakopee, but also presented a path for Shakopee’s job diversification. Specifically: » » Potential office tenants may be more likely to locate in Eden Prairie and other nearby communities that have a greater density of executive residents or proven office development. » » Low vacancy, averaging below 5% over the last decade, does not necessarily indicate demand for new space, as existing Shakopee office tenants are not likely consumers of new office space. » » Industrial tenants would prefer to collocate office space within production facilities rather than in a separate office building.

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Shakopee Office Rents

Submarket Shakopee Southwest Northwest Southeast Northeast

Vacancy Asking Rent

10% 12% 15% 15% 18% 17% 11%

$21 $28 $20 $23 $21 $28 $21

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$25

$21.44

$20

Minneapolis CBD St. Paul CBD

$15

$10

NE

NW

$5

SE

SW

$0

OFFICE SPACE QLOGIC’S RECENT DEPARTURE ILLUSTRATES HOW SHAKOPEE’S OFFICE MARKET’S SMALL SIZE EXPOSES THE CITY TO VOLATILITY WHEN LARGE TENANTS LEAVE. FIGURE 2.12 - TRENDS INOFFICE SPACE DEMAND

Office Trends SF Delivered Net Absorption

Vacancy

(150,000) (100,000) (50,000) - 50,000 100,000 150,000

13%

QLogic building

8%

3%

-2%

-7%

QLogic Downsizing

-12%

ENVISION SHAKOPEE |SECTION II: ECONOMIC ENVIRONMENT