Repositioned Office Product Driving Positive Market Change

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1 Research & Forecast Report > MINNEAPOLIS-ST. PAUL OFFICE Q Repositioned Office Product Driving Positive Market Change Q2 Market Indicators MSP OFFICE SUBMARKETS 610 VACANCY NET ABSORPTION RENTAL RATE Relative to prior period VACANCY AND ABSORPTION TRENDS At the mid-year point of 2018, we have seen a continued and steady expansion of positive absorption in the multi-tenant office market. There was a total positive 280,000 square feet of absorption in Q2 in the Twin Cities metro, which brings the total 2018 absorption figure to 407,000 square feet. This positive absorption and a lack of new multi-tenant construction deliveries, brought the direct vacancy rate down to 14.33% in Q2. The largest changes in vacancy were in two recently renovated buildings Baker Center in the Minneapolis CBD and West End Center in the West/Northwest office submarket. Both Class B buildings signed several new tenants after undergoing large-scale repositions. Tenants are now starting to occupy these buildings, which is impacting our multi-tenant statistics for Q2. WEST/ NORTHWEST 4 62 SOUTHWEST MINNEAPOLIS CBD Inventory by Submarket AIRPORT / SOUTH OF THE RIVER 36 ST. PAUL CBD 10 6 ST. PAUL SUBURBAN The Southwest and Minneapolis CBD submarkets had the highest positive absorption totals in both Q2 as well as year to date; the Minneapolis CBD has seen 240,000 square feet of positive absorption and the Southwest reached 146,000 square feet year to date. Another strong performing submarket is the West/Northwest, which is holding the lowest overall vacancy rate of our six office submarkets at 11.47%. Minneapolis CBD Southwest West/Northwest St. Paul Suburban St. Paul CBD Airport/South of the River

2 VACANCY AND ABSORPTION TRENDS (cont'd) In terms of new leases signed this quarter, eight of the ten largest leases were completed in the suburban submarkets versus the Minneapolis CBD. This is a significant change from the past three years where the Minneapolis CBD was seeing many of the metro s largest leases signed. Overall, mid-year 2018 stats appear to support a growing demand for suburban office product. Overall, average rental rates have risen slightly from $14.45 to $14.47 with the Minneapolis CBD averaging the highest asking rents at $16.33 and Class A CBD buildings capping off at $ For suburban submarkets, the West/Northwest has the highest rental rates with an overall average of $15.02 with Class A rates netting out at $ The construction pipeline remains relatively constant with several large deliveries expected in the second half of 2018 and first half The Prime Therapeutics buildto-suit is the largest project set for completion, which will be 400,000 square feet in the Airport/South of the River submarket. MoZaic East in the Southwest submarket is currently under construction and will bring 185,000 square feet of multi-tenant office space to the Uptown neighborhood of Minneapolis. The largest office product sale was 33 South 6th Street, also known as City Center, which sold for $320 million and marks the highest sale of a Minneapolis CBD building to date. Other notable sales were T3 in the North Loop neighborhood of the Minneapolis CBD, which sold for $87 million and Edinborough Corporate Center in the Southwest, which sold for $14.45 million. Vacancy 15.5% 15.0% 14.5% 14.0$ 13.5% 13.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Absorption 500, , ,000 0 (100,000) (300,000) (500,000) (700,000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Total Average Rental Rates $14.50 $14.00 $13.50 $13.00 $12.50 $12.00 $11.50 $11.00 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Q1 Q Q1 Q Q1 Q Lease Activity TENANT PROPERTY ADDRESS CITY LEASED SF SUBMARKET TYPE Cantel Medical 9800 at Bass Creek th Avenue N Plymouth 159,000 Northwest New nvent West End Center 5100 Gamble Drive Saint Louis Park 60,000 West New Kimley-Horn Case Industrial Center 767 North Eustis Street Saint Paul 56,000 Northeast New Amplifon Fifth Street Towers 150 S 5th Street Minneapolis 40,000 Mpls CBD New CoBank West End Center 5100 Gamble Drive Saint Louis Park 30,000 West New Magnet 360 West End Center 5100 Gamble Drive Saint Louis Park 30,000 West New Total Expert 1600 Tower at West End 1600 S Utica Avenue Saint Louis Park 28,380 West Sublease Country Financial Fifth Street Towers 150 S 5th Street Minneapolis 28,673 Mpls CBD New Ascentis Windsor Plaza Singltree Lane Eden Prairie 27,000 Southwest New Arthritis & Rheumatology Consultants, P.A. SpartanNash S-7600 France Avenue Edina 21,352 Southwest Sublease

3 OFFICE ACTIVITY AIRPORT / SOUTH OF THE RIVER Under Construction: 0 Completed in 2018: 0 WEST/ NORTHWEST MINNEAPOLIS CBD 51 ST. PAUL SUBURBAN 36 6 MINNEAPOLIS CBD Under Construction: 3 Projects 776,700 SF Completed in 2018: 2 Projects 134,043 SF SOUTHWEST Under Construction: 1 Project 185,273 SF Completed in 2018: SOUTHWEST Under Construction Completed in AIRPORT / SOUTH OF THE RIVER ST. PAUL CBD 10 ST. PAUL CBD Under Construction: 1 Project 60,000 SF Completed in 2018: 0 ST. PAUL SUBURBAN Under Construction: 1 Project 409,000 SF Completed in Projects 202,575 SF WEST / NORTHWEST Under Construction: 2 Projects 179,525 SF Completed in 2018: 1 Project 81,000 SF INVESTMENT INSIGHT COLIN RYAN SVP, INVESTMENT PROPERTIES & CAPITAL MARKETS , colin.ryan@colliers.com At the halfway point of 2018, the office investment sales trend of urban flight has not slowed down, as evidenced by the sales of HNA s 33 South Sixth/ City Center and Hines T3, both Class A trophy product in the Minneapolis CBD. The 33 South Sixth/City Center transaction demonstrates a continued demand from foreign investors in Class A trophy assets in the U.S. The sale of T3 by Hines to LaSalle Investments should only serve to strengthen the brick and timber market in the Twin Cities. Given these examples and similar investment trends nationally, it is likely downtown trophy assets will continue to trade at record pricing, simply because there is more institutional and foreign capital trying to be placed than product on the market. Furthermore, Minneapolis has strong fundamentals across the board and investors are attracted to the yield positioning Minneapolis offers, verses some of the more primary markets. Medical office product continues to be in high demand from investors, however, because there is little to no product on the market, buyers from coast to coast are being extremely aggressive when bidding for stabilized medical office. Suburban office investment sales continue to lag behind downtown and medical in transaction volume and price, as investors across the country have less demand for suburban assets due to the volatile state of the product and unknown future as a whole. Sales Activity PROPERTY ADDRESS CITY BUYER SELLER PRICE SF $/SF 33 South Sixth 33 S 6th Street Minneapolis Samsung HNA Group $320,000,000 1,346,500 $ T3 323 N Washigton Avenue Minneapolis Edinborough Corporate Center 3300 Edinborough Way Edina 1390 University Avenue W 1390 University Avenue W Saint Paul LaSalle Investment Management Altus Properties Investments LLC Elliot Bay Capital Trust Bit T3 Investors LLC Hines Interests LP EverWest Real Estate Partners $87,000, ,085 $ $14,450, ,206 $ MSP Commercial $7,075,000 25,228 $ Energy Park Drive 1125 Energy Park Drive Saint Paul Metro Deaf School Mapp Property LLC $7,000,000 95,000 $ Rice Street 980 Rice Street Saint Paul 7645 Lyndale Avenue S 7645 Lyndale Avenue S Richfield 3200 Main Street NW 3200 Main Street NW Coon Rapids Edgewood Real Estate Investment Trust 2075 Ford Parkway LLC and WWRE LLC Namakan Properties Inc c/o Bill Bailey MSP Commercial $5,590,000 15,562 $ Main Street Office LLC The James M Stanton Trust $4,700,000 34,450 $ $4,625,000 45,255 $102.20

4 SUBMARKET DEEP DIVE Airport / South of the River > The Airport/South of the River submarket is the smallest submarket by total square footage. Vacancy rates ended Q2 at 14.36%, which is consistent with the metro average of 14.33%. Q2 had 1,300 square feet of positive absorption and is negative 41,000 square feet to date overall. > There have not been any major leases signed in 2018 for this submarket. Tenant movement so far in 2018 has been limited to smaller spaces. L&H Station L&H Station located at 2225 E Lake Street in Minneapolis was the last office building delivered within the submarket, and was completed in The Gateway The Gateway, a 33-story mixed-use tower on 3rd and Nicollet in downtown Minneapolis, is projected to be completed in 2021 with RBC as its anchor tenant. > There are no current under construction projects for this submarket. The last office building to come online was delivered in 2017 and was part of the Lake & Hiawatha redevelopment project in Minneapolis at 2225 East Lake Street. Minneapolis CBD > The Minneapolis CBD is the largest submarket of the six Twin Cities office markets. The vacancy rate is 15.32%, which is the second highest in the metro. This rate has been impacted by tenants moving to single-tenant buildings and new or renovated space coming online in the last year. The Minneapolis CBD has seen 240,000 square feet of positive absorption year-to-date, which is the most of any submarket. > In Q1 of 2018, the largest lease of the year was signed by RBC who agreed to anchor a new tower development, taking 310,000 square feet. RBC will move from their current home in RBC Tower to the new development in the next three years. Other notable leases in the CBD include US Bank expanding by 50,000 square feet, Amplifon for 40,000 square feet and GlobalTranz for 23,000 square feet. > The most notable project that broke ground in Q2 is the City of Minneapolis 300,000 square foot build-to-suit office that will consolidate hundreds of its city employees into one space. Additionally, there are a number of multi-tenant projects currently under construction, specifically in the North Loop district of the Minneapolis CBD, and when complete, the projects will add 3,000 square feet of new space. Southwest > The Southwest is the second largest submarket by total square footage and is currently at 13.77% vacancy with 146,000 square feet of year-to-date absorption. > Early in 2018, there were a number of large new leases signed, headlined by Jostens who will take 58,000 square feet in Edina and Dairy Queen who signed a 50,000-square-foot lease at the Normandale Lake Office Park. MoZaic East Uptown's 8-story MoZaic East will contain 186,000 SF of office space and 11,000 of retail space, with underground parking stalls and is the second phase of this redevelopment. > To date, there have been no new construction deliveries in the Southwest submarket in However, there is a 186,000 square foot project under way in the Uptown neighborhood of Minneapolis called MoZaic East. When completed in Q4 2018, it will be the largest office building in that neighborhood with anchor tenant WeWork occupying 53,000 square feet.

5 St. Paul CBD > The St. Paul CBD is the Twin Cities secondary central business district as well as the civic hub of the state and home to the state capital. The office market is relatively small due to a high number of state-owned buildings that do not count in Colliers MSP multitenant stats, which contributes to the high vacancy rate. > The former Ecolab headquarters was renovated and rebranded as Osborne 370, which was completed this spring and several new tenants have signed leases. The 428, another new renovation, is currently under construction and will add 60,000 square feet of Class A office space to the market. > Contributing to the negative absorption figures in this submarket, which year-to-date are at negative 70,000 squarefeet, is Ditech, who has vacated space due to closing operations. The 428 The 428, a renovation of the former Woolworth's building at 428 Minnesota Street, is adding 60,000 SF of Class A office space to the St. Paul CBD. St. Paul Suburban > The St. Paul Suburban submarket is one of the largest in terms of area, spanning much of the east metro. Vacancy is 13.88%, which is below the market average of 14.33% and Class A vacancy in the St. Paul suburbs is the highest of any of our submarkets. > To date, no significant lease activity has been recorded in However, a pending item of interest is Prime Therapeutics taking 409,000 square feet in a new build-to-suit slated for delivery in Q1 of next year. This large move will also open several smaller vacancies throughout the submarket, as the company is consolidating several offices. Prime Therapeutics Prime Therapeutics broke ground on its new headquarters in Eagan in Q and is looking at a Q delivery for project completion. West/Northwest > The West/Northwest includes the 3-corridor, one of the largest suburban office trade areas in the Twin Cities. Demand for office space along the 3-corridor has pushed the submarket vacancy rate to the lowest of any submarket and has the highest suburban rental rates. The only submarket with higher average rental rates is the Minneapolis CBD. > A newly renovated building, West End Center, has seen the most leasing activity of any building in the suburbs. Pentair's electrical spin-off, nvent signed a 60,000-square-foot lease, CoBank and Magnet 360 each signed an additional 30,000-square-feet as well. The largest lease in the West/ Northwest submarket was Cantel Medical who signed 168,000 square feet. > The only building under construction, which is about to be delivered, is Thor Construction s new headquarters in North Minneapolis for which they are, of course, building themselves. nvent Pentair's electrical spin-off, nvent signed a 60,000-squarefoot lease in Saint Louis Park's West End Center in the 3-corridor.

6 SPOTLIGHT TREND: The Changing Dynamics of Tenant Improvement Most professionals working in commercial real estate know that construction and remodel prices are increasing, especially when talking about tenant improvement (TI) for office space. Megan Huber, Vice President and Director of Tenant Improvement at Welsh Construction, notes that the rising cost of TI is reflected first and foremost in basic construction materials. She says, In our experience, TI costs have risen approximately 4-5% year-over-year since With the 2017 lumber tariff and the 2018 aluminum and metal tariff impacts, we expect the 2018 overall cost increase to be about 5-6%. Despite these costs, companies know that office spaces must become more and more focused on creating a workplace with aesthetic design, employee wellness and amenity options in order to retain and attract talent. So how are companies balancing their budgets for TI while still affording to make their spaces attractive to employees? This budget balancing act arguably begins with the negotiation of lease terms. Mike Brehm, Vice President of Colliers MSP, has negotiated several different tenant improvement deal parameters on behalf of the clients he serves. In order for tenants to get the improved space they want but also keep costs down, according to Brehm, there are work arounds. He says, One option is to sign longer term deals in the 10-year range because landlords are willing to accommodate higher TI s and are either amortizing the additional costs into the base rent or not providing other concessions such as offering free rent. However, on the other side of the coin, with these higher costs, landlords are sharpening their pencils and taking a much harder look at tenant s financials and credit before signing leases with TI. After an expert tenant rep broker has negotiated the strongest TI package for a tenant within their unique budget, the TI project begins. So, while tenants are looking for unique build-outs more than ever, costs for all aspects of TI projects are going up, from raw materials to custom lighting, and with some consolations, companies don t necessarily need to spend more money.

7 Katie Berggren, Lead Project Manager at Colliers MSP, has seen this trend in her role managing numerous TI projects, both big and small. By cutting costs in some places and not others, tenants are not necessarily paying more for their wish list. Though $50 is the new $30, total dollars are not rising, but the cost for things are, Berggren said. TI projects become about budget adherence to get what a company wants, or close to what they want, plus some things on their wish list. The Project Management teams at Colliers MSP are finding there are some key trends that are driving up costs on TI s: > All glass and aluminum frame systems for enclosed spaces rather than traditional sheetrock and hollow metal framing are a costly new trend. > Open ceiling concept rather than regular ceiling tile is something that has really gained traction within the last 3-5 years and is more expensive than the more typical acoustical ceiling tile and grid system, due to higher costs for mechanical, electrical, plumbing and painting, as well as higher rates for technology vendors and other trades. > Collaboration spaces that feel more like a high-end coffee shop than a traditional office space are a hot commodity, as employees desire more than one location to be able to work from, rather than being stuck inside of a "cubicle farm". > IT departments still traditionally cable everything, even though there is wireless available nearly everywhere, which is a redundant cost. > Audio/visual equipment is now being used in almost every conference room, when previously companies would equip only one or two rooms. > Card readers are also trending to replace traditional lock and key systems, which is another added cost. Ultimately, it is important to understand that while these trends are on the rise, so are costs, so setting expectations and budgets early on in the process is essential to a successful negotiation of any TI project as well as the management of build-out. Because while costs of materials and labor are going up, the overall spend in total tenant improvement budgets generally are not. Tenants and their advisors will continually need to find creative solutions in the deal stage, planning and construction phases to find ways of providing the most bang for the budget.

8 BRYANT AVE N LYNDALE AVE N N 2ND ST UNIVERSITY AVE NE 19TH AVE S HOOVER ST NE EUSTIS ST MINNEAPOLIS CBD NEIGHBORHOODS BRYANT AVE N Hawthorne ALDRICH AVE N ALDRICH AVE N N 4TH AVE W FRANKLIN AVE N 6TH ST 3 Loring Park GARFIELD AVE HARRIET AVE N 4TH ST BROADWAY AVE N 7TH ST GRAND AVE S N 3RD ST N 10TH AVE PLEASANT AVE Stevens Square PILLSBURY AVE S N 3RD ST N PACIFIC ST WEST RIVER RD N NORTH LOOP N 6TH AVE N WASHINGTON AVE N 3RD AVE N 2ND AVE HENNEPIN AVE E 22ND ST Bottineau 47 Northeast Minneapolis Arts District S 7TH ST WAREHOUSE S 11TH ST S 12TH ST LORING W RIVER P KWY 4TH AVE N 1ST ST CBD NE MAIN ST 8TH AVE NE 3RD AVE S 4TH AVE S PORTLAND AVE S 5TH AVE S 3RD ST NE PORTLAND AVE S E ISLAND AVE Elliot Park 5TH ST NE 4TH ST NE ELLIOT AVE 4TH ST NE S WASHINGTON AVE S 4TH ST S 6TH ST PARK AVE CHICAGO AVE NE MAIN ST 3RD AVE S S 2ND ST E 19TH ST WASHINGTON ST NE E FRANKLIN AVE JEFFERSON ST NE BROADWAY ST NE 5TH ST NE W RIVER PKWY EAST E 21ST ST E 22ND ST MONROE ST NE QUINCY ST NE 3RD AVE NE CENTRAL AVE SE 6TH ST SE 5TH ST SE 2ND ST SE 5TH AVE SE UNIVERSITY AVE SE CADER AVE S Northeast Park SE 8TH ST S 6TH ST S 7TH ST FILLMORE ST NE PIERCE ST NE Mississippi River 18TH AVE NE BUCHANAN ST NE 5TH ST SE SE 4TH ST Dinkytown RIVERSIDE AVE 19TH AVE NE NORTHEAST 23RD AVE S SE 8TH ST E RIVER PKWY 12 Seward STINSON BLVD University of Minnesota FULTON ST SE Hillside Cemetery BROADWAY ST NE TRAFFIC ST NE TALMAGE AVE SE SE FAIRMOUNT ST ELM ST SE 6TH ST SE 6TH ST SE S 8TH ST E FRANKLIN AVE 30TH AVE S 31ST AVE W RIVER PKWY RIDGWAY PKWY E HENNEPIN AVE COMO AVE SE Como UNIVERSITY AVE SE 27TH AVE SE SE 4TH ST Prospect Park E RIVER PKWY ST ANTHONY BLVD KASOTA AVE SE INDUSTRIAL BLVD NE WALNUT ST 280 Lauderdale 280 N EUSTIS ST The Minneapolis CBD has distinct neighborhoods, from the trendy North Loop, to the skyscrapers in the CBD, to the neighborly feel of the Northeast. Each of these neighborhoods warrants a closer look. Beginning Q4 2016, we began tracking these distinct markets to better understand the dynamics of the CBD. # OF BUILDING SUBMARKET # BLDGS BUILDING SF BUILDINGS SF DIRECT AVAILABLE VACANT SF SF DIRECT % DIRECT % DIRECT W/SUBLEASE SUBLEASE % VACANT % VACANT VACANT VACANT SF VACANT VACANT VACANT SF SFW/SUBLEASE SUB" AVERAGE ASKING RATE AVERAGE OPERATING ABSORPTION YTD ABSORPTION Minneapolis Core A 18 13,041,205 1,681,267 1,593, % 1,603, % $18.97 $ ,183,261 B 29 7,593,305 2,008,085 1,785, % 1,809, % $15.42 $ ,950 69,346 C 9 733, , , % 119, % $13.50 $ ,234-1,741 Totals: 56 21,368,136 3,826,801 3,497, % 3,533, % $16.53 $ , ,866 Minneapolis East A 1 163, , , % 108, % $21.50 $ B 9 631,341 34,827 10, % 10, % $16.00 $ ,351-8,551 C 4 510,918 27, , % 131, % $15.50 N/A 0 0 Totals: 14 1,305, , , % 250, % $17.00 $ ,351-8,551 Loring Park A % 0 0.0% N/A N/A 0 0 B 2 106,681 9,755 9, % 9, % N/A N/A 0 0 C 2 68,019 1, % % $7.00 $ Totals: 4 174,700 11,514 10, % 10, % $7.00 $ Northeast A 1 180,739 45,333, %, % $14.50 $ B 18 1,811, , , % 168, % $14.36 $8.29-8,371 17,951 C 2 85, % 0 0.0% N/A N/A 0 0 Totals: 21 2,077, , , % 262, % $14.38 $8.50-8,371 17,951 North Loop A 4 958,5 185,530 69, % 69, % $20.98 $ ,318 21,318 B 20 1,414, , , % 165, % $19.21 $ C 4 262,893 8,886 8, % 8, % $15.25 $7.84 8,886 10,150 Totals: 28 2,635, ,7 236, % 243, % $19.33 $ ,204 31,468 Warehouse District A 1 220, % 0 0.0% N/A N/A 0 0 B 12 1,430, , , % 305, % $15.23 $ C 8 555,773 52,714 28, % 28, % $14.96 $ ,719 Totals: 21 2,207, , , % 334, % $15.13 $ ,052 Total Minneapolis CBD A 25 14,564,435 2,020,530 1,865, % 1,875, % $19.23 $ , ,579 B 90 12,988,172 2,714,872 2,405, % 2,469, % $15.79 $ ,561 79,079 C 29 2,216, , , % 289, % $13.68 $ ,348 47,128 Totals: ,768,836 4,963,390 4,560, % 4,634, % $16.33 $ , ,786

9 610 3/4 TRADE AREAS Corridor 6 The 3 Corridor is a seven million square foot 6 office trade area that spans the area around I-3 from the Minneapolis CBD, west to I-4. The trade area falls primarily in the West/Northwest submarket and centers around the West End district. Average rental rates are higher in the 3 corridor than any other submarket or trade area. Highway access to the western metro drives demand Corridor 3 Minneapolis 4 St. Paul Corridor # BLDGS The 4 corridor is a 14.5 million square foot trade area in the Southwest metro from the bend in I-4 to the MSP Airport with the center of the trade area being France Avenue. Most of the Southwest submarket falls within the 4 corridor boundary. This office trade area is second in size only to the Minneapolis CBD. Rents trend slightly above metro 10 demand driver for space being averages, with the proximity to housing in the Southwest metro. 169 SUBMARKET 4 4 Corridor 77 DIRECT AVAILABLE SF BUILDING SF DIRECT VACANT SF % DIRECT VACANT W/ SUBLEASE VACANT SF % VACANT W/ SUB" AVERAGE RATE AVERAGE OPERATING ABSORPTION YTD ABSORPTION $18.10 $16.22 $11.25 $16.77 $14.62 $11.60 $9.74 $12. 23,451 60,030-8,203 75,278 93,569 90,636-8, ,002 $16.54 $12.92 $8.00 $14.64 $12.84 $10.53 $7.47 $ ,240 10, , ,956 10,375 1, ,243 3 Corridor A B C Totals: ,176,457 2,511, ,123 6,925, , ,923 20,783 1,589, , ,503 17, , % 10.33% 7.39% 9.48% ,593,472 5,375, ,080 14,478,455 1,449,956 1,216,995 69,873 2,736,824 1,125, ,158 60,785 2,095, % 16.91% 11.% 14.47% 433, % 259, % 17, % 710, % 4 Corridor A B C Totals: 1,125, ,158 60,785 2,095, % 16.91% 11.% 14.47%

10 MARKET TRENDS The "other corridor" leasing surge The 4 corridor is the largest suburban office trade area in the metro, yet it has taken a backseat to the 3 corridor, the main artery connecting downtown to the affluent western suburbs, especially in the press. What has been somewhat forgotten in the news of late, is the leasing surge that has occurred in the Southwest submarket, particularly along the 4 corridor. In the last nine months, Jostens signed a new 58,000-square-foot lease on I-4 and France Avenue and Ascentis headlined multiple new leases off of I-4 in Eden Prairie, totaling 85,000 square feet for their new corporate headquarters. Finally, just over 100,000 square feet of space has been leased at Normandale Lake Office Park, located at I-4 and Highway 100, by tenants Dairy Queen, USI, Coca Cola and Gander Outdoors. Previous to this leasing momentum, the Normandale Lake Office Park had seen rising vacancy rates after departures of several large tenants, some of which left for the Minneapolis CBD. Overall, the 4 corridor has seen over 135,000 square feet of absorption in the last year, which is a notable shift worth paying attention to, as this activity in the Southwest suburbs points to a more even suburban demand than just the 3 corridor. Sublease a more palatable option for users There appears to be a recent trend of larger and corporate users choosing to sublet or defer to vacancy. For example, even if there is 1-2 years of term left on existing leases, if there is a need for a consolidation or a move for employee retention or attraction, corporations are finding that the benefits often outweigh the costs of the vacancy rent. Recent examples of this trend can be seen with St. Paul based Ecolab, who left leased space in the St. Paul CBD for their owned building, also in the St. Paul CBD. The Ecolab University building now sits vacant, even though there is over a year left in term remaining. It seems Ecolab made the decision for consolidation over the sunk cost of the lease. Jacks Links also made a similar move within the Minneapolis CBD last year, when they moved into new space in Mayo Clinic Square, vacating their previous location with an existing lease term in place. It is evident that this trend is happening across the metro as Prime Therapeutics will be going through a similar situation in the Southeast metro soon, as they consolidate multiple locations into their new build-to-suit building in Eagan. Some of their existing locations will still be under lease, but again, it appears that the benefit of one new location outweighed the costs and are looking to sublet vacancies. In previous years, in the Southwest SQUARE FEET FUTURE OUTLOOK Construction Completions 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 0 Looking Ahead Completed > Expecting rates to rise in core assets. > Sublease space is on the rise. Expected Completion 2018 VACANCY NET ABSORPTION RENTAL RATE > 2018 expected to end with over 1.5 million square feet of new construction, only the second year to reach that level in the last 12 years. submarket, Cargill consolidated two of their three buildings at Excelsior Crossings and moved back into their renovated space in their Wayzata headquarters. They are subleasing the two vacated buildings at Excelsior Crossings, totaling around 500,000 square feet, one of which was leased by US Bank. This situation can be a win-win for users on the other side as well, those looking to move into subleased space. For example, Gander Outdoors, a spin-off version of the bankrupt Gander Mountain, was looking for a shorter term real estate solution for their company and took a sublease space at Normandale Lake Office Park in the Southwest. Other users who may be interested in sublease space could be those who currently own. Subleasing provides an opportunity to sell owned buildings at a time when investment markets are strong and get into a nice space at a discounted rate. Ultimately, the trend of subleasing is on the rise and companies appear to be making business decisions first and foremost, then considering real estate outcomes as secondary.

11 MARKET STATISTICS SUBMARKET # BLDGS BUILDING SF DIRECT AVAILABLE SF DIRECT VACANT SF % DIRECT VACANT W/ SUBLEASE VACANT SF % VACANT W/ SUB" AVERAGE RATE AVERAGE OPERATING ABSORPTION YTD ABSORPTION Airport/South of the River A 21 1,883, , , % 220, % $16.02 $ ,240 B 62 4,271, , , % 713, % $12.42 $8. -1,665 3,238 C 29 1,273, , , % 137, % $9.14 $9.72 3,000 2,849 Totals: 112 7,428,850 1,297,618 1,066, % 1,071, % $12.78 $9.66 1,335-41,153 Minneapolis CBD A 25 14,564,435 2,020,530 1,865, % 1,875, % $19.23 $ , ,579 B 90 12,988,172 2,714,872 2,405, % 2,469, % $15.79 $ ,561 79,079 C 29 2,216, , , % 289, % $13.68 $ ,348 47,128 Totals: ,768,836 4,963,390 4,560, % 4,634, % $16.33 $ , ,786 Southwest A 61 9,211,074 1,540,910 1,206, % 1,206, % $16.69 $ , ,456 B 90 6,176,050 1,292, , % 955, % $12.83 $ ,963 10,375 C , ,783 76, % 79, % $9.11 $ ,912 Totals: ,257,375 2,953,680 2,238, % 2,241, % $14.65 $ , ,743 St. Paul CBD A 7 2,491, , , % 317, % $12.31 $ ,229-61,517 B 26 4,515,000 8, , % 920, % $11.21 $ ,568-8,343 C ,936 88,719 84, % 84, % $15.17 $ Totals: 45 7,646,686 1,499,633 1,322, % 1,322, % $12.24 $ ,797-69,860 St. Paul Suburban A 36 2,199, , , % 396, % $14.37 $ ,070-1,336 B 100 6,286, , , % 865, % $12.13 $ C 34 1,912, , , % 180, % $11.31 $ ,573 12,573 Totals: ,398,198 1,548,698 1,443, % 1,443, % $12.98 $ ,503 11,237 West/Northwest A 42 5,099, , , % 557, % $18.41 $ ,496 93,569 B 95 6,196,550 1,505, , % 892, % $14.36 $ ,6 36,597 C 41 2,057, , , % 139, % $9.53 $ ,719-11,306 Totals: ,353,237 2,434,218 1,531, % 1,589, % $15.02 $10. 57, ,860 Total All Markets A ,449,152 5,691,178 4,510, % 4,574, % $16.73 $ , ,511 B ,434,327 7,883,358 6,748, % 6,816, % $13.66 $ , ,6 C 167 8,969,703 1,122, , % 911, % $11.03 $ ,4 53,156 Totals: ,853,182 14,697,237 12,162, % 12,302, % $14.47 $ , ,613 The above table is summarized data on multi-tenant office buildings greater than 20,000 square feet. Not included are single-tenant, owner-occupied, medical or government buildings.

12 Local Expertise Comprised of 76 Licensed CRE Agents Leased in Metro Area 10.4M (square feet) Sold in Metro Area 22.0M (square feet) Comprised of 76 Licensed CRE Agents Leased in Metro Area 10.4M (square feet) Sold in Metro Area 22.0M (square feet) Years in Business 41 Sale Transactions 220 Lease Transactions 873 Global Reach Years in Business 41 Sale Transactions 220 Lease Transactions 873 Comprised of 15,400 professionals Revenue $2.7B (US$) Managing 2B (square feet) Comprised of 15,400 professionals Revenue $2.7B (US$) Managing 2B (square feet) Established in 69 countries Lease/sale transactions 68,000 All statistics are for 2017, are in U.S. dollars and include affiliates. Transaction value $116B (US$) Established in 69 countries Lease/sale transactions 68,000 All statistics are for 2017, are in U.S. dollars and include affiliates. Transaction value $116B (US$) FOR MORE INFORMATION CONTACT: Tyler Allen Senior Research Analyst Colliers International Minneapolis-St. Paul 4350 Baker Road, Suite 400 Minnetonka, MN colliers.com/msp SUBSCRIBE TO OUR BLOG Copyright 2018, Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.