The Parking Problem: More Users in Smaller Spaces Means Many Building Owners are in Tight Spots

Q1 2015 OFFICE MINNEAPOLIS-ST. PAUL OFFICE MARKET REPORT The Parking Problem: More Users in Smaller Spaces Means Many Building Owners are in Tight Spots SF Absorbed Percent Vacant MARKET INDICATORS Q1 2015 VACANCY NET ABSORPTION RENTAL RATE VACANCY 25% 20% 16.8% 17.2% 16.7% 16.1% 15.6% 15.2% 14.9% 14.2% 14.6% 15% 10% 5% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1 NET ABSORPTION 2,000,000 1,500,000 929,1691 981,934 1,000,000 750,841 585,965 253,779 503,756 500,000 0 (500,000) (312,099) (159,628) (1,000,000) (1,500,000) (2,000,000) (1,661,963) 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1 VACANCY AND ABSORPTION TRENDS Vacancy in the -St. Paul office market increased during the First Quarter of 2015 to 14.6 percent, up from 14.3 percent at Quarter Four. Absorption for Quarter One was a negative 159,628 square feet. Overall, vacancy is lowest in the West submarket at 10.7 percent, compared to 18.7 percent in the St. Paul CBD, where vacancy is the highest. Vacancy among Class A properties in the West submarket is low at 7.0 percent. MARKET TRENDS The major trend that we ve seen continue in the office market is companies desire for efficient, collaborative space, shrinking their overall real estate footprints and reducing the average square feet per employee. Since more people are working in less space, this is causing a problem with parking. Parking ramps in buildings are full, even when the building itself is only 85 percent leased. This has caused landlords to be more cognizant of their tenant mix. For example, a call center in a building will include a large employee count, which will in turn require high parking needs. Some landlords are turning office buildings into apartments, an appealing option to them due to the lower parking needs and the growing desire by Millennials to live closer to work. Some landlords and tenants are considering renovating existing office space to better align with the popular open floor plan. While this enables tenants to achieve higher employee ratios, it also results in higher costs due increased architectural fees above and beyond the tenant improvement and new furniture costs. www.colliers.com/msp

Q1 ABSORPTION Q1 VACANCY SF Absorbed 200,000 100,000 0 (100,000) (200,000) 43,125 Airport/South of the River (175,899) CBD 18,497 Southwest (77,128) St. Paul CBD 15,564 St. Paul Suburban (12,782) West 18,995 Northwest % Vacant 25 20 15 10 5 13.5% Airport/South of the River 14.0% 15.5% CBD Southwest 18.6% St. Paul CBD 14.5% St. Paul Suburban 10.9% West 17.8% Northwest INVESTMENT The last two years have seen a multitude of trophy properties sold. While another wave of trophy properties will likely be sold, the Class B market is now heating up for investors. Liquidity has been added to the Class B market, especially if the property can be leased or improved upon. There is speculation that other Class B buildings will be up for sale soon, especially along the 394 corridor, which is now seen as a core market. One of the Class B complexes found along this corridor is the Parkdales, which was recently sold and the new owners have plans for significant investment in the property. Some portion of the complex will most likely become apartments, and the rest will be renovated and leased at a rate of approximately $18 per square foot, which compares to the overall average rental rate of $13.41 for Class B properties in the West submarket. Cap rates have continued to decrease, including those at suburban properties, which didn t go as low as premiere properties in the CBD. We are beginning to see signs that they are bottoming out. As interest rates tick upward, rental rates would need to increase significantly for cap rates to continue to go down. DEVELOPMENT The Offices at Mall of America are scheduled to be completed in the third quarter of 2015, and are offering potential tenants a unique mix of amenities, including significant parking, shopping, and restaurant options. Along with these amenities comes a high price tag, however, with current rental rates set at $24 net. The sales approach with this building is focused on price per employee versus price per square feet, since they offer flexible floor plans which accommodate larger employee numbers in smaller spaces. Hines is planning a speculative development project in the North Loop neighborhood of the CBD. Hines is planning on matching the centuries-old properties typical to this neighborhood and combining vintage architecture with modern amenities such as open floor plates. There are a number of corporate build-to-suit projects also under construction including Downtown East, a 1.16-million-square-foot property being built for Wells Fargo s headquarters. Also in the CBD, Be the Match and Xcel Energy have space under construction. In the Southwest suburban market, UnitedHealth Group has over 850,000 square feet of space under construction at a corporate campus in Eden Prairie. Ryan companies recently purchased the Kinney & Lange Building at 312 Third Street South. Located in the Downtown East area, the building is near the new Vikings stadium and Wells Fargo office development, which Ryan is heavily involved in. Ryan plans to demolish the building and build new office space in this up-and-coming location. FORECAST The continued densification of employees in office space throughout the entire market, along with a lack of tenants seeking 25,000-50,000-square-foot space will most likely slow absorption rates, though smaller users will continue to remain active. The Class B market will see more activity, especially with regard to sales and renovations. The 394 corridor will continue to become a core market, with France Avenue following closely behind it. There s a lack of space for larger tenants in the France Avenue area, making it prime for becoming a tightening, core market.

SIGNIFICANT SALE AND LEASE ACTIVITY SALES BUILDING ADDRESS CITY BUYER SELLER SUBMARKET PRICE PRICE PSF SIZE Fifth Street Towers 100 S 5th St PIMCO Minnetonka Medical Center 6405 France Medical Building Dell Professional Building Savage Medical Building Crystal Medical Center Helene Houle Medical Center Minnesota Eye Consultants The Parkdales Former Ameriprise Operations Center 15400 Hwy 7 Minnetonka 6405 France Ave S 7770 Dell Rd Chanhassen 6350 W 143rd St Savage 5700 Bottineau Blvd 1155 E County Rd E 10709 Wayzata Blvd 5401 Gamble Dr 1001 North 3rd Ave South Arden Hills St. Louis Park St. Louis Park Excelsior Group JV Goldman Sachs DCI Technology Holdings Invesco RE JV Zeller Realty Corp CBD $154,000,000 $151 1,019,816 The Davis Group West $26,000,000 $409 63,500 The Davis Group Southwest $14,190,000 $203 70,000 The Davis Group Southwest $6,410,000 $315 20,357 The Davis Group Southwest $12,800,000 $361 35,485 The Davis Group Northwest $14,782,000 $329 44,865 The Davis Group St. Paul Suburban $18,422,000 $325 56,700 The Davis Group West $10,882,000 $370 29,400 LNR Partners OBO ML-CFC 2006-4 West $40,000,000 $72 559,336 KanAm Grund CBD $22,400,000 $41 541,000 Alliance Bank Center 525 5th St NW Saint Paul Kelly Brothers Ltd Security National St. Paul CBD $8,200,000 $39 212,000 Olympic Place Wedgwood Commerce Center 1300 Corporate Center Curve 317 South 2nd Avenue Kinney & Lange Building 2800 County Road 42 West 212 2nd Street Southeast 7825 Washington Ave S 6900 Wedgwood Rd N 1300 Corporate Center Curve Eden Prairie Maple Grove Eagan Altus Properties Onward Investors Mark E Davis Aetna Life Insurance Co Cornerstone RE Advisers Universal Cooperatives Inc Southwest $7,750,000 $70 110,000 Northwest $6,800,000 $62 109,920 Airport/South of River $4,750,000 $88 53,856 317 S 2nd Ave TPI Hospitality NHH Properties CBD $4,200,000 $59 71,500 312 3rd St S Ryan Companies 2800 County Rd 42 W 212 2nd St SE Skywalk Properties LLC CBD $4,030,000 $56 72,204 Burnsville Velasco 2800 LLC Mike Whalen Southwest $2,850,000 $132 21,600 Twin Cities Properties Group LLC St Anthony Main Phase II LLP/Sam Larry LLC CBD $2,600,000 $58 45,000

SIGNIFICANT SALE AND LEASE ACTIVITY LEASES TENANT BUILDING ADDRESS CITY SUBMARKET SIZE (SF) Hired Northland Corporate Center 7225 N Northland Dr Brooklyn Park Northwest 30,000 Vanco Northland Plaza 3800 American Blvd W Bloomington Southwest 29,451 US Bank US Bank Plaza Office South Tower 220 S 6th St CBD 25,628 Lazard Middle Market IDS Center 80 S 8th St CBD 23,304 Wold Architects First National Bank Building 332 Minnesota St CBD 23,180 GSA US Bank Financial Center 1550 E American Blvd Bloomington Southwest 19,729 RCRI 5353 Wayzata Blvd 5353 Wayzata Blvd Saint Louis Park West 19,559 Brooklyn Center School District Shingle Creek Plaza 5910 Shingle Creek Pkwy Brooklyn Center Northwest 18,552 Central Pediatrics Commerce Hill Medical Building Tamarack Rd and Woodbury Dr Woodbury St. Paul Suburban 17,000 Bluestem Brands Crosstown Centre 10050 Crosstown Cir Eden Prairie Southwest 16,614 Wenck Associates Inc Valley Square Corporate Center 7500 Olson Memorial Hwy Golden Valley West 16,583 The Jacobson Law Office 180 5th St E 180 5th St E Saint Paul St. Paul CBD 15,000 Little & Company 100 Washington Square 100 Washington Ave CBD 14,000 Regus Grandview Square 5201 Eden Ave Edina Southwest 12,829 Perkins + Will IDS Center 80 S 8th St CBD 11,832 EMC Insurance One Southwest Crossing 11095 Viking Dr Eden Prairie Southwest 11,576 Milliman Health Normandale 8500 Tower 8500 Normandale Lake Blvd Bloomington Southwest 11,500 North Memorial Oakdale Medical Building East 3366 Oakdale Ave Robbinsdale Northwest 10,996 Ciresi Law Firm Capella Tower 225 S 6th St CBD 10,802 SunOpta One Corporate Center IV 7301 Ohms Ln Edina Southwest 10,664 Health Partners 180 5th St E 180 5th St E Saint Paul St. Paul CBD 9,174

Market Statistics SUBMARKET TOTAL SF DIRECT VACANT SF % VACANT DIRECT SUBLEASE VACANT SF % VACANT W/SUBLEASE ASKING RATE 2014 ABSORPTION Q1 2015 ABSORPTION AIRPORT/SOUTH OF THE RIVER A 1,713,357 178,532 10.4% 0 10.4% $13.48 158,430 15,299 B 3,570,547 544,205 15.2% 61,196 17.0% $11.69 114,843 13,079 C 1,273,707 161,541 12.7% 4,464 13.0% $10.11 (37,289) 14,747 Totals: 6,557,611 884,278 13.5% 65,660 14.5% $11.65 235,984 43,125 MINNEAPOLIS CBD A 13,041,205 1,716,489 13.2% 222,550 14.9% $17.25 (38,684) (268,321) B 10,797,768 1,669,009 15.5% 171,711 17.0% $13.64 148,893 85,017 C 3,698,785 461,286 12.5% 0 12.5% $11.30 104,916 7,405 Totals: 27,537,758 3,846,784 14.0% 394,261 15.4% $13.98 215,125 (175,899) SOUTHWEST A 9,473,521 1,210,448 12.8% 125,173 14.1% $15.24 80,784 11,210 B 6,090,057 1,231,886 20.2% 199,293 23.5% $13.64 (258,917) (19,905) C 926,675 108,362 11.7% 0 11.7% $11.30 13,117 27,192 Totals: 16,490,253 2,550,696 15.5% 324,466 17.4% $13.37 (165,016) 18,497 ST. PAUL CBD A 2,128,667 346,937 16.3% 45,180 18.4% $12.78 (81,623) (26,476) B 4,779,720 1,055,179 22.1% 9,289 22.3% $10.91 5,882 (63,654) C 831,936 37,869 4.6% 0 4.6% $8.00 20,454 13,002 Totals: 7,740,323 1,439,985 18.6% 54,469 19.3% $11.27 (55,287) (77,128) ST. PAUL SUBURBAN A 2,895,775 538,866 18.6% 65,288 20.9% $14.30 (9,468) 36,739 B 6,294,608 832,674 13.2% 77,673 14.5% $10.88 102,208 1,685 C 2,165,179 271,397 12.5% 0 12.5% $10.39 (20,337) (22,860) Totals: 11,355,562 1,642,937 14.5% 142,961 15.7% $12.08 72,403 15,564 WEST/NORTHWEST A 5,279,479 561,510 10.6% 51,778 11.6% $16.66 183,510 (17,230) B 5,858,225 1,004,752 17.2% 84,046 18.6% $12.60 62,638 27,552 C 2,077,520 154,647 7.4% 0 7.4% $8.77 78,733 5,891 Totals: 13,215,224 1,720,909 13.0% 135,824 14.0% $13.45 324,881 16,213 WEST A 4,038,190 307,515 7.6% 51,778 8.9% $17.94 159,378 (26,435) B 3,962,743 595,808 15.0% 84,046 17.2% $13.41 (4,675) 4,801 C 761,893 52,735 6.9% 0 6.9% $8.96 29,443 8,852 Totals: 8,762,826 956,058 10.9% 135,824 12.5% $14.34 184,146 (12,782) NORTHWEST A 1,241,289 253,995 20.5% 0 20.5% $13.94 24,132 9,205 B 1,738,931 407,944 23.5% 0 23.5% $10.83 67,313 12,751 C 1,315,627 101,912 7.7% 0 7.7% $8.38 49,290 (2,961) Totals: 4,295,847 763,851 17.8% 0 17.8% $11.53 140,735 18,995 TOTAL ALL MARKETS A 34,532,004 4,552,782 13.2% 509,969 14.7% $15.34 292,949 (248,779) B 37,390,925 6,337,705 16.9% 603,208 18.6% $12.08 175,547 43,774 C 10,973,802 1,195,102 10.9% 4,464 10.9% $10.23 159,594 45,377 Totals: 82,896,731 12,085,589 14.6% 1,117,641 15.9% $12.94 628,090 (159,628)

Market Statistics (EXPANDED MARKET) SUBMARKET TOTAL SF DIRECT VACANT SF % VACANT DIRECT SUBLEASE VACANT SF % VACANT W/SUBLEASE ASKING RATE 2014 ABSORPTION Q1 2015 ABSORPTION AIRPORT/SOUTH OF THE RIVER A 2,368,092 202,931 8.6% 0 8.6% $13.40 178,622 15,655 B 6,462,160 982,837 15.2% 61,196 16.2% $11.93 100,179 (32,862) C 2,937,440 517,497 17.6% 4,464 17.8% $10.37 (37,557) 37,047 Totals: 11,767,692 1,703,265 14.5% 65,660 15.0% $11.91 241,244 19,840 MINNEAPOLIS CBD A 13,805,787 1,719,324 12.5% 222,550 14.1% $17.25 (40,397) (268,321) B 13,944,964 1,690,409 12.1% 171,711 13.4% $13.87 148,786 96,180 C 5,622,125 463,886 8.3% 0 8.3% $11.62 104,916 4,805 Totals: 33,372,876 3,873,619 11.6% 394,261 12.8% $14.12 213,305 (167,336) SOUTHWEST A 12,821,141 1,528,090 11.9% 185,173 13.4% $15.16 675,188 11,210 B 8,675,473 1,384,080 16.0% 200,705 18.3% $11.88 (211,214) (38,233) C 3,105,409 244,119 7.9% 0 7.9% $11.00 (41,737) 81,010 Totals: 24,602,023 3,156,289 12.8% 385,878 14.4% $13.37 422,237 53,987 ST PAUL CBD A 2,773,960 351,019 12.7% 45,180 14.3% $14.56 (78,673) (27,009) B 5,717,264 1,055,179 18.5% 9,289 18.6% $10.84 5,882 (63,654) C 3,002,535 61,394 2.0% 0 2.0% $7.00 20,454 17,658 Totals: 11,493,759 1,467,592 12.8% 54,469 13.2% $11.54 (52,337) (73,005) ST. PAUL SUBURBAN A 4,206,783 1,012,267 24.1% 65,288 25.6% $14.16 (3,157) 45,077 B 10,421,523 1,015,427 9.7% 84,399 10.6% $10.84 204,705 583 C 7,354,563 306,520 4.2% 0 4.2% $9.17 (25,595) (18,188) Totals: 21,982,869 2,334,214 10.6% 149,687 11.3% $11.81 175,953 27,472 WEST/NORTHWEST A 8,381,374 627,315 7.5% 51,778 8.1% $16.31 209,754 106,970 B 9,374,337 1,233,036 13.2% 224,138 15.5% $12.28 15,774 19,760 C 5,166,532 174,172 3.4% 0 3.4% $9.54 113,444 8,556 Totals: 22,922,243 2,034,523 8.9% 275,916 10.1% $13.31 338,972 135,286 TOTAL ALL MARKETS A 44,357,137 5,440,946 12.3% 569,969 13.6% $15.22 941,337 (116,418) B 54,595,721 7,360,968 13.5% 751,438 14.9% $12.04 264,112 (18,226) C 27,188,604 1,767,588 6.5% 4,464 6.5% $10.28 133,925 130,888 Totals: 126,141,462 14,569,502 11.6% 1,325,871 12.6% $12.86 1,339,374 (3,756) The above table is summarized data on multi- and single-tenant office buildings greater than 10,000 square feet. Owner-occupied properties are also included. Not included are government or medical buildings.

MARKET REPORT Q3 2013 OFFICE MINNEAPOLIS-ST. PAUL

MARKET REPORT Q4 2011 OFFICE MINNEAPOLIS-ST. PAUL 502 offices in 67 countries US $2.3 billion in annual revenue 16,300 professionals and staff 1.7 billion* square feet under management $97 billion USD in total transaction value * Square footage includes office, industrial and retail property under management. Residential property is excluded from this total. All statistics are for 2014. -St. Paul 4350 Baker Road, Suite 400 Minnetonka, MN 55343 DIRECT 952 897 7700 www.colliers.com/msp Accelerating success.