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Q2 2015 1 OFFICE
<br />MARKET INDICATORS
<br />Q2 2015
<br />VACANCY ++
<br />Strong activity continues in the office
<br />market for both leasing and sales
<br />VACANCY AND ABSORPTION TRENDS
<br />Vacancy in the Minneapolis -St. Paul office market decreased slightly during the Second Quarter
<br />of 2015 to 14.5 percent, down from 14.6 percent at Quarter One. Absorption was positive at
<br />460,602 square feet, bringing the year-to-date total to 300,974 square feet. Overall, vacancy is
<br />lowest in the Class A properties in the West submarket, which is posting a low vacancy rate of
<br />8.7 percent, compared to 12.5 percent overall for all Class A. The highest vacancies are in the
<br />St. Paul CBD, where the vacancy rate is 18.4 percent overall and 22.1 percent among Class B
<br />buildings.
<br />NET ABSORPTION
<br />TENANT ACTIVITY
<br />RENTAL RATE H The Twin Cities office market is showing strong activity, especially along the 394 Corridor and
<br />Highway 55. There has also been an increase in tenant interest in Eden Prairie, and even the
<br />typically -slow Airport/East Bloomington market is showing an uptick in prospects. There are
<br />more users to pursue, especially in the 2,000 -15,000 -square -foot range. There is an overall
<br />VACANCY lack of larger users in the market, with the prevailing thought being that many of the larger users
<br />25% finalized early renewals when economics were more favorable toward tenants.
<br />20%
<br />n 2%
<br />� 16.8% 16.7%16.1% 15.6%
<br />15.2% 14.9%/■'�■��� 14.2% 14.5%
<br />j 15% ■
<br />v
<br />a10%
<br />591
<br />2007 2008 2009 2010 2011 2012 2013 2014 2015
<br />02
<br />NET ABSORPTION
<br />2,000,000
<br />1,500,000
<br />v 1,000,000 929,1691 981,934 750 841
<br />a 500,000 253779 585,965 503,756 300,974
<br />0
<br />LL (500,oam
<br />N (312,099)
<br />(1,000,000)
<br />(1,500,000)
<br />(2,000,000) (1,661,963)
<br />2007 2008 2009 2010 2011 2012 2013 2014 2015
<br />02
<br />YTD
<br />The office market is showing signs of shifting from a tenant's market to a landlord's, although
<br />not across the board. Prime areas include the 394 Corridor near the West End, Class A in upper
<br />floors of properties near Nicollet Mall in the Minneapolis CBD and in the Southwest submarket
<br />at Centennial Lakes Office Park and Normandale Lake Office Park. Concessions are dwindling
<br />at these properties, with not all tenants receiving a full tenant improvement package and free
<br />rent incentives are being reduced. Concessions have all but become extinct along the 394
<br />Corridor, where vacancy is tight, and space along Highway 55 is following suit. In slower
<br />markets such as the South of the River or 494 Corridor, there are still a few aggressive owners
<br />pursuing tenants, which causes more free rent and tenant improvement concessions in these
<br />areas.
<br />Concessions on renewals are also diminishing, and rates are slowly rising for these existing
<br />tenants. Renewing tenants are often paying the quoted rates, and some landlords will even ask
<br />for a premium rate if they feel the tenant is a captive one. In the landlord -driven 394 and 55
<br />markets, the probability of a tenant renewing their space is high, whereas the tenants located
<br />along 494 and South of the River have more options available and may be less likely to
<br />automatically renew their space.
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