By David Goldfisher, The Henley Group
Secondary and tertiary office markets across the Midwest, including Chicago, Minneapolis, Madison, Milwaukee, Cleveland, Cincinnati, Columbus and St. Louis, are facing mounting pressure. While each city has its own challenges, a common theme is clear — vacancies remain high and liquidity is thin.
Tenant shuffling
One of the defining dynamics today is tenant reshuffling rather than net growth. As leases expire, employers frequently move from one building to another, seeking modernized space and stronger amenities. Renovating in place is disruptive and costly, while relocating allows businesses to upgrade with minimal operational downtime.
This “musical chairs” effect highlights a deeper structural issue. There are only so many large anchor tenants in Midwest cities and few new entrants are seeking major blocks of space. There is more repositioning for existing tenants than attracting new ones.
Flight to quality
Landlords and developers are competing to deliver amenities that encourage office attendance and support talent retention. Modernized lobbies, tenant lounges and flexible collaboration areas have become standard expectations. Hines’ upgrades at Chicago’s 333 West Wacker Drive and 601W Cos.’ reinvestment in the Old Post Office demonstrate the scale of investment required.
But not all landlords can compete. With construction and tenant improvement costs elevated, reinvestment is selective. Owners carrying heavy debt loads are reluctant to commit capital without clear prospects for return.
Market snapshots
• Cleveland & St. Louis: Rising vacancies and limited liquidity weigh on Class B and C buildings. Suburban campuses and top-tier Class A towers are faring better.
• Columbus & Cincinnati: Lenders remain cautious, and investors are on the sidelines. Projects such as Rockbridge Capital’s mixed-use redevelopments in Columbus show long-term confidence, but activity is limited.
• Milwaukee: Challenges persist, but Irgens’ BMO Tower has demonstrated how efficient, high-quality space can still capture demand.
• Minneapolis: More than 20 million square feet sits vacant metro-wide, including 9 million square feet in downtown Minneapolis. At current absorption, it could take decades to refill.
• Kansas City: Vacancy hovers around 16.7 percent, compared with a national average near 20 percent. Adaptive reuse in the Crossroads Arts District offers a model for repositioning.
• Des Moines: With vacancy near 22.2 percent, selective transactions continue, often tied to healthcare or mixed-use conversions.
Conversion as a solution
Office-to-residential conversions are often touted as a solution, but only a fraction of buildings are physically or economically feasible. Successful projects, such as the Century Building redevelopment in St. Louis and Sherman Associates’ planned conversion of NorthStar Center East in Minneapolis, show what’s possible under the right conditions. Yet challenges such as deep floorplates, infrastructure retrofits and the absence of new tax incentives limit widespread application.
Flat population growth
A key constraint in many Midwest cities is flat population growth and limited new business formation. Unlike markets such as Austin or Nashville, Midwest demand is not being buoyed by large inflows of new companies or residents. Without that organic growth, tenant retention and selective upgrades remain the primary tools to stabilize occupancy.
Debt, liquidity pressures
The misalignment between debt structures and today’s rent rolls continues to depress valuations. Many assets are underwater, and landlords are hesitant to reinvest without debt relief. Liquidity is thin, and lenders are focusing on the most creditworthy borrowers or well-capitalized projects.
Distressed sales, loan modifications and recapitalizations are expected to increase. For lenders, the environment demands flexibility and creativity. For owners, it means navigating a prolonged period of uncertainty while balancing near-term challenges against long-term opportunities.
Why it matters
High vacancies and declining values affect more than landlords. Municipal budgets, tax bases and local employment are all tied to healthy office districts. Without reinvestment, buildings risk falling further behind, while successful repositionings can help stabilize neighborhoods and restore vibrancy to downtown cores.
The road ahead
Despite the headwinds, opportunities exist for patient investors and creative developers. Distressed assets in strong submarkets may be ripe for repositioning. Architects and planners with adaptive reuse experience such as ESG Architecture & Design in Minneapolis and Forum Studio in St. Louis are likely to play a critical role in reshaping the landscape.
The Midwest office market is in transition. Success will require aligning financial realities with design innovation and long-term resilience. While the challenges are real, this moment also offers a chance to reimagine how these cities use their space, revitalizing both buildings and communities in the process.
David Goldfisher is co-founder and principal of The Henley Group. This article originally appeared in the October 2025 issue of Heartland Real Estate Business magazine.