Minneapolis office property valuations have been falling as the city's attempts to rebuild post-pandemic momentum have been stifled by political and social unrest.
The estimated market value of commercial properties in the city fell to $7.8 billion this year, according to a newly published report from the assessor's office, down from $8.6 billion last year. The decline spotlights the challenges Minneapolis and other markets across the country face as they grapple with billions of dollars of evaporated tax revenue.
The estimated market value of downtown commercial properties in Minneapolis fell 13.7% between 2024 and last year, according to the report, a drop that was even more acute for the city's central business core.
"This is the fifth straight year of decline and the third straight year of a decline of at least 9.5% in values" for the downtown area, Minneapolis Board of Estimate and Taxation President Steve Brandt said at a meeting last week. "That tells me the market hasn't found a bottom yet."
What's more, those depreciating office valuations were calculated before a new round of unrest shook the city at the beginning of this year.
A federal government immigration crackdown touched off a new round of protests. When U.S. Immigration and Customs Enforcement agents killed two residents in January, it reignited some impressions and fears of disorder that had erupted after a white Minneapolis police officer killed George Floyd, an unarmed Black man, in May 2020.
Still, Minneapolis isn't alone in grappling with how to cover the losses stemming from declining office values. Other cities across the country, such as Boston, Philadelphia and Denver, have struggled to rebuild their tax bases as commercial landlords grapple with elevated vacancies, softened demand and shriveled rental income.
'Greater burden'
A number of investors in the Minneapolis area have described the environment as detrimental to rebuilding office demand. City officials said earlier this year that millions of dollars in hotel, restaurant and small-business revenue were lost as residents and visitors largely avoided the region.
The decline in commercial properties' assessed values often means that residential properties bear the brunt of tax revenue responsibilities, a phenomenon already unfolding across Minneapolis. Based on last year's assessments, residential properties contributed more than 53.5% of the net tax capacity, according to data from the city assessor.
"Overall, this means that residential properties will bear a greater burden of taxes payable in 2027 than they did in 2026," city assessor Rebecca Malmquist told city leaders at a separate meeting last week.
Early this year, several office buildings sold at staggering discounts, reflecting the market's ongoing valuation woes.
Downtown's Wells Fargo Center, for example, sold for just $85 million in late 2024, a nearly 75% discount from the $313.6 million price tag it commanded in early 2019.
Assessed values are based on estimations of what a property could sell for in current market conditions. Assessors often weigh factors such as recent renovations and improvements, rental income and sales of similar properties in the area. Those values are also used to calculate property taxes for landlords that come due the following year.
The values of some of downtown Minneapolis' largest and most prominent office towers, such as the IDS Center, Capella Tower and the aforementioned Wells Fargo Center, all fell sharply last year, some by more than 20%.
Declining outlook
Meanwhile, other U.S. cities are seeing a similar drop-off in office valuations.
In Boston, the values among some downtown office properties have dropped as much as 50% since 2019, according to a recent assessor's report. And for some of Philadelphia's large office buildings, values have dropped by nearly 30% over the past six years, local officials have said, a decline they attribute to the city's vacancy rate spiking to just shy of 25%, as well as the effects of remote work and higher taxes.
Among office sales that have closed across the United States over the past year, $4.7 billion in value was wiped out compared with the properties' previous sale prices dating back to 2010 — an aggregate decline of 24%, according to CoStar analysis. That cohort of deals was dragged down by a handful of big, expensive downtown towers, many of which have traded for just a fraction of what they previously commanded.
Overall, more properties declined in value than rose — 199 losses versus 181 gains — and the typical owner lost money, with an average return of negative 3.8%, according to the analysis.
Even with a downtown vacancy rate at a historic high of nearly 23%, some Minneapolis officials are hoping the latest decline in the city's estimated market value could be a turning point.
"As we meet with brokers and buyers and sellers, there is a sentiment that there are some rays of hope and light," said Malmquist.