Tim Carlson, Executive Director, Savills

Invest: sat down with Tim Carlson, executive director for Savills, to discuss the Twin Cities commercial real estate market, including market trends, sector-specific growth opportunities, client challenges, and the strategic initiatives Savills is undertaking to enhance its services and expand its presence in the region.

Could you provide us with an overview of the commercial real estate market in the Twin Cities?

Right now, the office market in the Twin Cities is beginning to stabilize. During the pandemic, we saw declining rental rates and increasing availability, but I think we’ve reached a trough. Those trends have leveled off, and we’re advising clients that we’ll likely see a period of stabilization before any significant rebound in the next two to three years.

One of the most common topics we’re addressing with clients is “back to work.” Many organizations are still figuring out how to re-engage employees and bring them back to the office. This looks different for every company, so we’re having a lot of customized consulting discussions about how to create environments that attract employees while meeting business objectives.

Another major trend is the “flight to quality,” a term we hear a lot but that remains highly relevant. Class A properties—those high-quality assets—are successfully attracting tenants back to the workspace. Meanwhile, Class B and C assets are struggling. We’ve seen record-low sales for B and C properties on a per-square-foot basis over the past 12 to 24 months, and that trend may continue.

In the industrial sector, demand remains strong. Even before the pandemic, demand was outpacing supply, and developers have been constructing speculative industrial suites for about six years. Now, many of those suites are nearing 90% occupancy, especially in areas like the northwest and eastern suburbs. While we are seeing some leveling off, industrial remains a dominant sector in commercial real estate. 

We are also seeing a lot of activity in the healthcare market. Over the past five to eight years, there’s been a shift from hospital-based care to ambulatory surgical centers and medical office buildings. These are often located outside traditional hospital campuses, particularly in suburban markets. While some healthcare systems are financially constrained, the demand for these kinds of spaces has remained steady and will likely grow over the next three to five years.

Across the office, industrial, and healthcare sectors, how does Savills help clients strategize and select the best spaces?

One of Savills greatest strengths is the depth and breadth of our expertise. We have subject-matter experts in almost every industry you can imagine. That was one of the biggest appeals of our team joining the Savills network—having access to the tools and resources that allow us to provide clients with data-driven strategies. 

In today’s market, clients don’t just want options—they want data to justify their decisions. This is where our tools come into play. They enable us to dive deep into our client’s business needs. Instead of starting with, “I need X square feet,” the conversation begins with understanding the overall business objectives. We analyze factors like workforce availability, logistics and transportation to ensure we’re recommending the right location, size, and setup for their needs. 

I’d also highlight that our work doesn’t stop with the initial planning. For portfolio clients, we offer ongoing data tracking and transaction management. We look at key performance indicators across their locations and provide evolving insights that help them adapt to changing needs. This ensures that our clients have the tools to make informed, strategic decisions over time.

Which service lines in the Twin Cities market are the main drivers of growth?

I wouldn’t pinpoint one specific service line as the definitive driver of growth, as we’re seeing demand across several areas. That said, tax appeals are always at the top of clients’ minds when dealing with owned assets. Right now, office properties are being devalued significantly, and many counties haven’t updated their assessments to reflect those lower valuations. That’s created value opportunity, and we’ve had a lot of success assisting clients with this.

Change management is another area of focus, especially as clients navigate returning to the office. Designing the workplace for this new era has become a critical concern. The days of traditional cubicle farms are almost over—clients want collaborative spaces, shared amenities, and environments that foster engagement and productivity.

Project management is also in high demand, particularly given the rising costs of construction. Clients want sharp oversight of bids and assurance that their improvement budgets are being utilized effectively.

Finally, we’ve always prided ourselves on offering integrated services—essentially acting as an extension of a company’s real estate department. For companies without an internal real estate team, we become that resource. Our process includes strategic planning, transaction management, design, construction, and other services like change and relocation management. Clients want expertise throughout the entire lifecycle of a real estate project, whether it’s a single requirement or a portfolio.

If an investor unfamiliar with the Twin Cities market were considering entering the space, what opportunities would you highlight?

While we don’t typically represent investors, we do represent the tenants who occupy those spaces, so we have insights into the market. Historically, the Twin Cities market has been less volatile than the coasts, making it a relatively stable place to invest. However, the office market has seen significant devaluation post-pandemic, creating opportunities for well-priced acquisitions.

That said, industrial remains a safer, long-term bet. Even though that sector has leveled off, demand is still high. Healthcare is another promising sector due to ongoing shifts in the delivery of care, particularly the move toward outpatient facilities and ambulatory centers. 

While we don’t directly advise investors, we expect some to seek sale-leaseback opportunities as large employers look to liquefy assets. Conversion projects, like turning office buildings into residential properties, might also become more viable as prices drop. These projects, however, require buildings with specific characteristics, like smaller floorplates.

What are the primary challenges facing your clients in the Twin Cities market right now, and how is Savills addressing them?

Labor is a consistent challenge. The war for talent has been ongoing, and while unemployment has crept up slightly, finding skilled labor remains difficult. Clients in industries like life sciences and manufacturing rely on us to help identify markets with available talent. For example, in the life sciences sector, we help companies determine whether they need to pivot their locations locally or even globally to access the workforce they need. 

Additionally, the rising costs of construction, regulatory changes, and broader economic uncertainties add complexity. We address these challenges by offering comprehensive planning, robust data analysis, and tools that help clients anticipate and adapt to changes.

If we had this conversation again in two years, what would you hope Savills has accomplished in the Twin Cities market?

We’re focused on two main priorities: leveraging technology and growing our teams in key markets. Over the past year, we’ve built an AI platform called Savills GPT in partnership with OpenAI to centralize data and enhance decision-making. This tool ensures our clients receive accurate, timely insights across all sectors. 

From a growth perspective, we aim to expand our team and service offerings in the Midwest, ensuring we have the depth to meet evolving client needs. Whether it’s workplace design, change management, or portfolio strategy, we want to lead in providing solutions that align real estate with business objectives.