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ARDEN HILLS SPECIAL CITY COUNCIL WORKSESSION — FEBRUARY 12, 2024 2 A. Rice Creek Commons/TCAAP Commercial Zoning Discussion City Administrator Perrault stated that at a previous work session Council discussed commercial zoning on Rice Creek Commons and requested staff bring back commercial developers to discuss the site. Specific items discussed were building materials, retail building size, and warehouses. Mr. Cattanach noted that United Properties has developed office industrial, multi -family, retail and senior housing. They also own a substantial amount of real estate. Mr. Roberts said he's been in commercial real estate for almost 18 years. His grandfather developed a lot of the industrial buildings in Arden Hills, he and his father have focused on office/warehouse type buildings, retail and senior apartments. Mayor Grant asked if they could talk about office/warehouse space and the trends in the commercial market. Mr. Roberts thought the warehouse component of the industrial office type building was critical. Many manufacturing facilities need warehouse space to store product before it is worked on or made into something, and while waiting to ship the finished product. He wouldn't consider reducing the amount of warehouse. Mr. Cattanach added that a traditional office user wouldn't need the warehouse aspect. Businesses are looking for spaces where they can create or assemble something but also have an office setting. Groups that want to have a location such as Rice Creek Commons want to have access to a work force and having a class A space helps bring in employees. The key thing they are seeing more of is the functional work space has gone higher to be able to put more product inside the same square footage. Most buildings are being built on a speculative basis and having it be as flexible and accommodating as possible to potential users. Councilmember Holden said they are seeing people from outstate buying the buildings and rent is going up — they aren't asking for Minnesota rent, they're asking for New York rent. Mr. Cattanach replied that industrial continues to be one of the most desirable products versus office buildings. Right now, there is sub 5% vacancy for industrial space in the Twin Cities. There is continued demand and that is showing where rent has to be. He thought rent here was more affordable than in other markets. Councilmember Fabel asked what they see as the office market in the suburban area and how is it affected by the high rates of vacancy happening downtown. Mr. Cattanach said a lot of companies are looking for smaller space than they currently have and they are able to pay more for the smaller space. There has been a shift to more opportunities in the suburbs but in his opinion if they don't have the user in tow, they don't have the ability to get it financed because construction costs would probably be cost prohibitive. High rise office buildings downtown that haven't had investment into amenities or increasing work space environments will suffer because the only compelling thing they have to offer is low rent. Conversely, a brand new office building can bring people back into the office.