Minneapolis industrial values up, office, residential falls

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Minneapolis City Assessor Rebecca Malmquist provided some confirmation to real estate professionals Monday during her presentation on the city’s Assessment Report to the Budget Committee: The value of Minneapolis commercial properties is down — and the main culprit is office buildings.

Commercial properties overall, the report showed, were worth $13.2 billion at this time in 2023. In 2024, combined the properties were worth $12.1 billion.

The estimated market value of the citywide industrial market saw a 3.7% increase from 2023 to 2024 — while downtown Minneapolis commercial properties saw a 13.0% decrease in value over the same period.

The value of Uptown commercial properties was down 0.8% from last year’s estimated market value, and commercial property outside of Uptown and downtown saw a modest 1.9% increase in value.

Homes also saw a decrease in value. Combined, residential properties saw a drop of 1.3% in estimated market value this year. The worst two wards for decreasing residential value were Ward 7, with an 8.8% decrease, and Ward10, with a 6.6% decrease. Both wards connect to downtown Minneapolis.

The only wards to see growth in value for 2024 were two in north Minneapolis, Wards 4 and 5, which saw 2.6% growth and 0.7% growth, respectively.

Duplexes and triplexes saw a negative net change in value of 1.8%, while single-family property types saw a negative net change of 1.2%.

Since the pandemic, the property tax burden on commercial and industrial spaces has continuously fallen and placed onto residential properties. This year, residential properties will account for 51.6% of the net tax capacity, while commercial properties will account for 28.9% and the remaining 19.5% of net tax capacity is allocated to apartment buildings.

Mahlquist said while fielding a question from a council member that last year also saw a decrease in commercial properties’ estimated market values, but the industrial properties values increased significantly.

“While commercial was coming down, industrial was coming up, and they kind of balanced each other out, so there wasn’t that shift to residential, but we’re not seeing that this year,” Mahlquist said. “There will be a shift to residential properties when it comes to the calculation of taxes.”

Andrew Babula, the director of real estate programs at the University of St. Thomas, said he thinks that it’s possible to see residential property values outside the city of Minneapolis start dropping, but he doesn’t think that the residential devaluations are significant or long term.

“The biggest issue I think the city of Minneapolis is facing is from the office devaluation,” he said. “St. Paul might be more like Minneapolis, but other suburban cities — they might see some of that because they’ve got offices, but they don’t have the volume of offices that Minneapolis has and therefore may be more insulated than Minneapolis.”

Matt Mullins, vice president at Maxfield Research, echoed that sentiment but said the city needs to start figuring out what to do with the vacant office space and make up the lost revenue in the long term.

“Sure, we can convert some of these to apartments, and that will make a little bit of a dent,” he said. “But the reality is … it’s challenging to make these office conversions to residential work.”

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