To reset downtown Minneapolis skyway life, building owners cut deals with retailers

When chef David Fhima developed the Mother Dough concept with his son in late 2021, he knew he wanted the bakery and cafe to be in downtown Minneapolis — even though office workers were few and far between as the second pandemic year came to a close.

Fast forward to 2025, and Fhima is poised to bring Mother Dough to a third building in the urban core as part of a multimillion-dollar renovation of the U.S. Bancorp Center's ground floor and skyway levels.

"It started very slow," he said. "Now it's very successful. You make good deals in bad times, and bad deals in good times."

Fhima is one of several restaurateurs and retailers who have scored especially good lease deals as the downtown Minneapolis real estate market adjusts to the post-COVID world of hybrid work.

The skyways lost multiple lunch-hour mainstays after the pandemic emptied downtown offices and cut their customer base. In the time since, some building owners have started offering favorable terms on storefronts to tenants that help boost curb appeal.

"For us, restaurants and retailers aren't just tenants — they're placemakers," wrote Josh Krsnak, CEO of Hempel, which owns downtown's LaSalle Plaza and the Lofton Hotel. "They help activate the street and the skyway, bring life to our buildings and create an experience that office users and hotel guests value."

Some landlords are charging rent based on a businesses' monthly sales, while others have chipped in to fund improvements to the space. Lower rates and free months have also become more common.

Fhima said all of the above came into play for Mother Dough, which has existing locations in Capella Tower and the Vicinity luxury apartments.

"None of them wants to lose money," he said of building owners. "But they look at us more as an amenity for their tenants. They're looking for a space that's going to give the building a soul, a space that's going to give the building a heartbeat."

Wooing tenants

Even before the pandemic, downtown retail was attempting to adapt to changing consumer behaviors. Decades have passed since the "four-block walk" of department stores — Dayton's, J.C. Penney, Donaldson's and Powers Dry Goods — anchored Nicollet Mall, drawing shoppers from across the metro area.

Similarly, office landlords were already ratcheting up efforts to woo corporate tenants with high-quality amenities. When Gray Fox Coffee opened its first location at Deluxe Plaza in 2018, owner Chris Bjorling said he was brought in to activate the ground-floor atrium.

"They're not trying to squeeze market-rate rent out of us," he said. "And my value proposition back is I will be a much more stable and long-term tenant because I have a business model that can actually sustain the ebbs and flows of downtown."

The business is not without challenges, Bjorling said: In the era of Zoom and Slack, even "a sniff of snow" can lower sales drastically as workers forgo their commute.

Post-COVID downsizing raised the stakes higher. As the competition for office tenants intensified, retail vacancies proliferated. About 40% of retail spaces are vacant in Downtown West, which includes the central business district, according to the Minneapolis Downtown Council's retail inventory tracker.

"Like many buildings, we've had a lot of concepts that have gone dark since COVID," said Damian Miller, central region executive vice president for Piedmont Office Realty Trust, which owns the U.S. Bancorp Center on Nicollet Mall. "It's hard for those retailers to justify opening up a new location on the skyway just because there hasn't been the foot traffic — though that has picked up significantly, from our perspective."

Piedmont is in talks with several new prospects as it nears completion of its two-level remodel, which cost more than $10 million. The goal is to deliver a hospitality feel, "like you're walking into a five-star hotel," Miller said.

To create that experience, Piedmont is being selective in how it fills its empty spaces. Mother Dough is among the incoming tenants, as well as Fhima's new commissary concept, which will increase his bakery output and serve deli-style food.

"You want a healthy mix for your tenant base," said Andrea Leon, a vice president for JLL focused on office leasing. "You can't have all fast-casual. You can't have all high-end sit down. It has to be the right fit for the building."

Each deal is different, brokers emphasized, and not every building needs or can afford to discount space. But those offering incentives seem especially interested in food and beverage offerings that appeal to office tenants and help drive foot traffic.

"Is there financial viability for a Class-A coffee shop in every single commercial property downtown? You don't need to be a rocket scientist or even a great business analyst to kind of guess that that may not be feasible," said Lisa Middag, senior director of economic development for the Downtown Council. "But if it's critical to keep your tenants happy, and if the majority of your revenue is coming from commercial tenants in your tall building stack, then it's something you might consider subsidizing."

Betting on the future

Coffee shops have been particularly sought-after tenants for some building owners, especially after Caribou Coffee closed several downtown locations in 2023.

A Dunn Bros. Coffee filled the void in Gaviidae Common late last year. The company got "a sweet deal when it came to rent," said Charlie Friedler, vice president of leasing for New York-based CityView Commercial, which bought the property's retail space in early 2020.

"We took a loss, but it was all worth it," he said. "Because we got a tenant in there who brings a lot of traffic and who the community loves."

Gaviidae has solicited a wide array of retailers as it worked to fill storefronts vacated during the pandemic, with tenants ranging from a daycare to a jeweler to participants of the Downtown Council's Chameleon Shoppes pilot, an incubator program for businesses owned by women or people of color.

After years in the red, Friedler said he's hopeful the building will start turning a profit.

"I'm just happy that I was able to walk through Gaviidae and hear that all these retailers are finally starting to do well — which shows that there's a future for us as well," he said.

It's unclear how long opportunities for deals will exist downtown, real estate officials said. Since the pandemic's onset, public- and private-sector leaders have proclaimed visions of a mixed-use downtown, with a greater residential population creating vibrancy at all hours.

If those dreams are realized, it will take time. But in the shorter term, the hybrid office schedule may appeal to retailers with a plan to hit sales targets with fewer hours, Middag said.

The entertainment sector has led downtown's post-pandemic recovery, she added, and other property owners are trying to build on that momentum. Hempel, for instance, is planning a downtown food hall helmed by the team behind the Market at Malcolm Yards.

"The many who left downtown will look back and go: 'Oops, we should have stayed,'" Fhima said. "I really believe that."