MINNEAPOLIS, MN INDUSTRIAL REPORT

4Q09

ECONOMY
ECONOMY BEAT ON THE STREET
The Manhattan
A recent surveyoffice market continued
of Minnesota to tighten
manufacturers duringbythe
conducted thefirst half of 2007,
Minnesota extending
Department "Minnesota’s economy with less reliance on
strengths exhibited
of Employment andduring the second
Economic half of 2006.
Development (DEED) Steady
andemployment
the Federalgrowth
Reservecontributed
Bank the farm sector, tends to behave more like the
to
ofpositive absorption
Minneapolis of available
indicated space and rapidly
that the manufacturing escalating
industry asking
declined rents.
more than national economy. As such, the global
anticipated in 2009. More than 70.0% of the responding manufacturers experienced recession and rising productivity have
The New York City economy expanded at a healthy pace during the first six months of the reduced manufacturing employment by more
declining orders and profits during the year. Employment levels and business
year, led by strong gains in office-using employment. Data available through the end of than 41,000 or 12.3% over the past year. I
investment dropped as a result. expect these job losses to halt as the strong
May show that the City has added nearly 16,800 jobs in industries that are key to the
growth in new orders translates into a
commercial office market,
While the outcome of this with financial
survey services
illustrates and professional
the depth of the economic business servicesinadding
downturn somewhat stronger labor market.”
7,400
2009, and 5,500 jobs,
conditions respectively.
in Minnesota are This resultedEmployers
improving. in increasedadded
demand2,000forjobs
office
in space in a
market that was
November, and already
the statethe tightest it hadrate
unemployment beenfell
since
0.2 the first quarter
percentage pointofto2001.
7.4% -Dr. Ernie Goss, Creighton University
according to DEED. This rate was 2.6 percentage points below the national
The year began with 26.1 million square feet available throughout Manhattan. By the end of
unemployment rate of 10.0% in November. Also, the Minnesota Business Conditions ECONOMIC INDICATORS
June, available space had fallen precipitously to 20.8, a decline of 20.5%. This diminishing
Index climbed to 57.1 in November from October’s 55.9. This reading was the fourth National 2008 2009F 2010F
availability of space has been the story of the market; April 2007 was the only month in the
straight month that Minnesota’s index has climbed above neutral growth according to GDP Growth 0.4% -2.5% 2.3%
past year that did not record a month-to-month decline of at least 122,000 square feet. As
Creighton University. An index above 50.0 forecasts an expanding economy for the
a result, Manhattan’s overall vacancy rate has tumbled to a six-year low, closing the mid- CPI Growth 3.8% -0.4% 1.7%
next three to six months.
year at 5.3%. Regional
Unemployment 5.2% 7.9% 8.1%
OVERVIEW
OVERVIEW
Declining orders, profits and production restrained business expansion and, in many
Employment -0.2% -3.6% 0.1%
In this environment, it is no surprise that asking rates have skyrocketed. Up 36.2% from a Growth
cases, triggered contraction, negatively impacting occupancy in the local industrial real Source: Moody’s | Economy.com
year ago, Manhattan’s overall total average asking rent closed the first half of 2007 at
estate market in 2009. Overall vacancy jumped 2.3 percentage points to 12.5% after
another record-high: $59.17 per square foot. Thus far this year, rents have increased by an MARKET FORECAST
the market endured a 26.7% increase in available sublease space and 1.2 million square
average of $1.44 each month since January, breaking the old record set back during the
feet (msf) of negative absorption during the past four quarters. ABSORPTION will be restrained but will
second and third quarters of 2000. The rapid pace of rental rate growth has extended turn positive in 2010 as corporations
Rising vacancy
throughout and limited
Manhattan. tenantsubmarket
In every demand pushed
but one,average
overallasking rentalregistered
rents have rates double- respond to modest economic expansion.
downward
digit in 2009
percentage after experiencing
increases five consecutive
from a year ago. years of
Chelsea, up 4.2%, wasgrowth.
the onlyOver the past
exception.
OVERALL VACANCY is expected to
12 months, rental rates in manufacturing properties dropped 5.1% to $5.23 per square
On a cautionary note, however, leasing activity throughout Manhattan was slower during decline as tenants gradually absorb
foot (psf) while flex rates fell 4.4% to $7.35 psf. Warehouse/distribution rents held vacant space in the market.
the first two quarters, partially attributable to both significantly higher rents and lack of
relatively firm, dropping 1.1% to $4.70 psf.
available space. With 11.8 leased year-to-date, 2007 activity trails last year’s total through DEVELOPMENT activity is forecasted to
June by 5.4%, with Midtown trailing by nearly 20.0%. This suggests that tenants are remain muted until the supply of
FORECAST available space tightens.
possibly beginning to search for lower-priced space in response to landlords hiking up rents
Respondents to the DEED manufacturing survey were guarded but somewhat
throughout market inventory.
optimistic in their outlook for 2010. Orders, production level and productivity are all
expected to expand while most respondents indicated that prices, employment and
OUTLOOK
investment in facilities or equipment would hold steady through the year. Results of OVERALL RENTAL VS. VACANCY RATES
This year’s leasing has been dominated by Manhattan’s leading industries. Financial services
this survey coupled with the positive Business Conditions Index readings point to an
firms (36.4%) and legal services firms (11.7%) accounted for nearly one of every two square Rental Rate Vacancy Rate
improved economy in 2010.
feet leased from January through June. In April, Lehman Brothers Holdings, Inc. signed $6.50 15.0%

We expect trends
Manhattan’s largestinnew
the lease
local in
industrial
2007, a market to trail
414,575-sf the improving
sublease economy
at 1271 Avenue of slightly
the $6.00 13.0%
through the year as businesses maximize their existing space prior to expanding.
Americas. The frequency of transactions with taking rents starting at or above $125.00 New
construction activity has stopped, restricting the supply of new space delivered
continued to climb: 18 such transactions year-to-date versus 21 signed in the four previous to the $5.50 11.0%
psf/yr

market which
years combined. will keep vacancy in check. Overall vacancy will slowly descend with
$5.00 9.0%
improved leasing demand as corporations gradually seek opportunities to improve
their local real estate holdings. Asking rates will continue to fall and rent concessions $4.50 7.0%
will be prevalent as landlords enhance their tenant retention and attraction strategies.
$4.00 5.0%
While tenant demand will be far from robust, the local industrial real estate market will 2003 2004 2005 2006 2007 2008 2009
experience a modest recovery through 2010.
MINNEAPOLIS, MN INDUSTRIAL REPORT 4Q09 1
 MINNEAPOLIS, MN INDUSTRIAL REPORT 4Q09

OVERVIEW MINNEAPOLIS
2009 INVENTORY BY PROPERTY TYPE RENTAL vs. OVERALL VACANCY RATES

Warehouse/Distribution Manufacturing Flex

Rental Rate Vacancy Rate

18.6% $6.00 20.0%

26.2% $5.50 17.0%
$5.00 14.0%

psf/yr
$4.50 11.0%
$4.00 8.0%
$3.50 5.0%
$3.00 2.0%
4Q07 2Q08 4Q08 2Q09 4Q09
55.2%
*Average asking warehouse rent in all property types
• Warehouse/distribution space is the fastest-growing segment • Minneapolis is the tightest industrial submarket in the metro
of the Minneapolis/St. Paul industrial market, totaling 22.3 area with a 7.0% overall vacancy rate, up 1.9 percentage point
msf. The inventory grew 2.0% over the past year as 429,260 over the year as the submarket experienced 266,637 sf of
sf of new space were delivered. negative absorption.
• The manufacturing and flex inventories held steady through • Warehouse/distribution properties experienced a 6.0
2009 at 47.1 msf and 15.8 msf, respectively as very little percentage point jump in overall vacancy to 9.9% as
development activity occurred. occupancy declined by 171,881 sf.

OVERVIEW NORTHEAST
DIRECT RENTAL RATES vs. AVAILABLE SPACE RENTAL vs. OVERALL VACANCY RATES
Flex Rent MF Rent Rental Rate Vacancy Rate
W/D Rent Available Space
$10.00 11.0 $6.00 20.0%

$8.00 10.0 $5.50 17.0%

$5.00 14.0%
$6.00 9.0
psf/yr

psf/yr
msf

$4.50 11.0%
$4.00 8.0
$4.00 8.0%
$2.00 7.0
$3.50 5.0%
$0.00 6.0
$3.00 2.0%
4Q07 2Q08 4Q08 2Q09 4Q09
4Q07 2Q08 4Q08 2Q09 4Q09

*Average asking warehouse rent in all property types

• Overall vacancy in manufacturing properties climbed 2.1
percentage points during 2009 to 10.6%.
• Flex vacancy inched 0.2 percentage point higher to 14.3%
after experiencing 29,799 sf of negative absorption.
• Warehouse/distribution vacancy jumped 4.4 points to 15.3%
as 429,260 sf of new space were delivered in the past year
while the amount of available sublease space nearly tripled.
• The Northeast was the only submarket in the metro area to
experience positive absorption during 2009. Overall vacancy
dipped 0.2 percentage points to at 10.3% as a result.
• Tenant demand for flex space generated 156,266 sf of
absorption while manufacturing properties endured 123,088
sf of negative absorption. Warehouse/distribution demand
was flat. Submarket absorption totaled 23,382 sf for the year.

2
 MINNEAPOLIS, MN INDUSTRIAL REPORT 4Q09

NORTHWEST SOUTHWEST
RENTAL vs. OVERALL VACANCY RATES RENTAL vs. OVERALL VACANCY RATES

Rental Rate Vacancy Rate Rental Rate Vacancy Rate

$6.00 20.0% $6.00 20.0%

$5.50 17.0% $5.50 17.0%
$5.00 14.0% $5.00 14.0%

psf/yr
psf/yr

$4.50 11.0% $4.50 11.0%

$4.00 8.0% $4.00 8.0%
$3.50 5.0% $3.50 5.0%

$3.00 2.0% $3.00 2.0%

4Q07 2Q08 4Q08 2Q09 4Q09 4Q07 2Q08 4Q08 2Q09 4Q09

*Average asking warehouse rent in all property types *Average asking warehouse rent in all property types

• Overall vacancy in the Northwest submarket climbed 2.6
percentage points to 12.6% after experiencing 488,430 sf of
negative absorption during 2009. This rate represents the
highest vacancy reported in over three years.
• Warehouse/distribution vacancy jumped 6.2 percentage
points to 14.0% after experiencing 346,769 sf of negative
absorption. Manufacturing and flex properties experienced
47,739 sf and 93,922 sf of negative absorption respectively.
• Tenant demand staged a modest recovery in late 2009,
generating 120,621 sf of positive absorption during the past
six months, bringing total absorption to negative 79,785 sf
for the year.
• Flex vacancy held relatively firm through the year at 16.6%
while manufacturing vacancy jumped 4.7 percentage points to
13.4%. This represents the highest vacancy in six years.
Warehouse/distribution vacancy slipped 3.3 points to 23.5%.

SOUTHEAST ST. PAUL/MIDWAY

RENTAL vs. OVERALL VACANCY RATES RENTAL vs. OVERALL VACANCY RATES

Rental Rate Vacancy Rate Rental Rate Vacancy Rate

$6.00 20.0% $6.00 20.0%

$5.50 17.0% $5.50 17.0%

$5.00 14.0% $5.00 14.0%

psf/yr
psf/yr

$4.50 11.0% $4.50 11.0%

$4.00 8.0% $4.00 8.0%

$3.50 5.0% $3.50 5.0%

$3.00 2.0% $3.00 2.0%

4Q07 2Q08 4Q08 2Q09 4Q09 4Q07 2Q08 4Q08 2Q09 4Q09

*Average asking warehouse rent in all property types *Average asking warehouse rent in all property types

• At 18.7%, the Southeast submarket contains the highest
overall vacancy rate in the market, up 4.4 percentage points
from year-end 2008.
• Manufacturing properties experienced 196,507 sf of negative
absorption, generating a 3.7 percentage point vacancy
increase to 11.4%. Warehouse/distribution vacancy climbed
8.0 percentage points to 29.3% after a vacant 282,100 sf
project was delivered in the first half of 2009.
• Despite a 2.8 percentage point increase through 2009, the St.
Paul/Midway submarket contains one of the metro area’s
tightest industrial inventories with overall vacancy at 7.5%.
• Overall flex vacancy jumped 4.1 percentage points to 7.5%
after enduring 53,416 sf of negative absorption through the
year. Manufacturing properties and warehouse/distribution
properties experienced 27,302 sf and 27,181 sf of negative
absorption, respectively.

3
 MINNEAPOLIS, MN INDUSTRIAL REPORT 4Q09

MARKET/SUBMARKET STATISTICS
OVERALL YTD YTD DIRECT WEIGHTED AVERAGE
NO. OF VACANCY UNDER CONSTRUCTION OVERALL NET RENTAL RATE*
MARKET/SUBMARKET INVENTORY BLDGS. RATE CONSTRUCTION COMPLETIONS ABSORPTION FLEX MF W/D
Minneapolis 13,779,388 92 7.0% 0 0 (266,637) $6.72 $5.00 $4.40
Northeast 9,636,665 101 10.3% 0 0 23,382 $7.45 $5.40 $4.75
Northwest 23,454,000 207 12.6% 0 147,160 (488,430) $7.60 $5.20 $4.80
Southeast 10,972,208 115 18.7% 0 282,100 (241,690) $7.28 $5.60 $4.45
Southwest 19,764,666 181 15.8% 0 65,000 (79,785) $7.42 $5.25 $4.45
St. Paul/Midway 7,596,759 57 7.5% 0 0 (107,899) $7.45 $5.20 $4.10
TOTAL 85,203,686 753 12.5% 0 494,260 (1,161,059) $7.35 $5.23 $4.70

BY PROPERTY TYPE 2009 2008 2007

Flex 15,812,357 165 14.3% 0 0 (29,799) $7.35 $7.69 $7.36
Manufacturing 47,071,824 448 10.6% 0 65,000 (942,466) $5.23 $5.51 $5.58
Warehouse/Distribution 22,319,505 140 15.3% 0 429,260 (188,794) $4.70 $4.75 $4.58
TOTAL 85,203,686 753 12.5% 0 494,260 (1,161,059) $5.48 $5.73 $5.66
*Rental rates reflect $psf/year
MF = Manufacturing W/D = Warehouse/Distribution

MARKET HIGHLIGHTS
SIGNIFICANT 2009 NEW LEASE TRANSACTIONS
BUILDING SUBMARKET TENANT SQUARE FEET PROPERTY TYPE
3880 Fourth Avenue Southwest Cokem International 158,000 Warehouse/Distribution
7601 Setzler Parkway Northwest Graybar Electric 120,048 Warehouse/Distribution
9210 Wyoming Avenue Northwest Target Printing 86,941 Manufacturing
13150 George Weber Drive Northwest Blu Dot 61,000 Warehouse/Distribution
Eagandale Crossing Southeast Buffets Inc. 44,000 Flex
Atlas Business Center II Southeast Bekins-TC Moving Systems 37,708 Warehouse/Distribution
6601 Parkway Circle Northwest Roberts Hamilton Co. 28,000 Manufacturing
Fridley Interstate Distribution Center Northwest Innovative Laser Technologies 27,938 Warehouse/Distribution
New Brighton Commerce Center Northeast Comtrol 26,763 Flex
990 Apollo Road Southeast Material Processing Corp. 26,133 Manufacturing
SIGNIFICANT 2009 SALE TRANSACTIONS
BUILDING SUBMARKET BUYER SQUARE FEET PURCHASE PRICE
13201 Wilfred Lane Northwest CBRE Investors 341,040 $15,340,000
7101 Louisiana Avenue Southwest Cobalt Industrial REIT 195,754 $7,900,000
8775 Zachary Lane Northwest Cabot Properties 192,924 $10,350,000
2800 Northwest Boulevard Northwest Keystone Properties 163,238 $10,500,000
7450 Metro Boulevard Southwest City of Edina 138,728 $7,600,000
410 11th Avenue South Southwest Ugorets 110,076 $2,800,000
1001 Johnson Parkway St. Paul/Midway Hmong Village LLC 107,730 $3,500,000
2890 Center Point Drive Southeast Schadegg Development 101,851 $8,450,000
2700 Blue Water Road Southeast Blue Water Rd LLC 99,353 $5,800,000
2778 Cleveland Avenue Northeast Twin Lakes IV LLP 99,176 $9,275,000
SIGNIFICANT 2009 CONSTRUCTION COMPLETIONS
BUILDING SUBMARKET MAJOR TENANT SQUARE FEET COMPLETION DATE
First Park Lakeville Distribution Center Southeast Speculative 282,100 6/09
AMB Rogers Distribution Center Northwest Blu Dot 147,160 5/09
1701 West 94th Street Southwest Speculative 65,000 3/09
SIGNIFICANT PROJECTS UNDER CONSTRUCTION
BUILDING SUBMARKET MAJOR TENANT SQUARE FEET COMPLETION DATE
N/A

*Market terms & definitions based on BOMA and NAIOP standards.

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