Brokerage Outlook: Minnesota

• Suburban Minneapolis/St. Paul Retail

• Minneapolis/St. Paul Industrial

• Metro Minneapolis/St. Paul Office

Suburban Minneapolis/St. Paul Retail Submitted by Ben Glover and Brad Kaplan with the retail services group of Grubb & Ellis|Northco Real Estate Services' Minneapolis office. Posted 06-21-06. What area is your expertise? • The retail market in the suburban Minneapolis/St. Paul metro areas. What trends do you see presently in retail development in your area? • Abundant housing development occurring on the outer edge of suburbia brings the development of big box-anchored retail space, supported by smaller national retailers. Several new superstore-anchored developments are planned on the outer edges of the Twin Cities. • As outer-edge retail thrives, inner-loop infill developments and redevelopments occur to compete with the high-quality contemporary style of the newly constructed retail projects. In turning retail inside out, lifestyle shops and attached restaurants with indoor and outdoor seating create a vibrant setting compared to the traditionally closed-in feel of a mall. • In greater Minnesota cities, with the development of new supercenters, the center of retail is shifting away from the main street and near the edges of town where there is land and freeway accessibility from surrounding cities. Some existing malls are struggling with the shift, although some have strived to change their focus from retail tenants, allowing office and medical uses to occupy their space, keeping their malls full. What type of retail product is doing well in your area? • Supercenter-anchored malls and lifestyle centers. Older malls are being redeveloped or turned inside out. Most existing inline retail product is receiving a face-lift to adapt to the new lifestyle look. What retailers are new to your area? • Lowe's Home Improvement Warehouse, Oil Can Henry's, Butterfly Life, Cabela's, Trader Joe's and AIM Mail Centers. Who are the active retail developers in your area? • Ryan Companies, Duke Realty Corporation and Opus Corporation. Please name one or two significant retail developments in your area. What impact will these projects have on the market? • The Grove in Maple Grove, Minnesota, which Ryan Companies is developing, will be a 550,000-square-foot power center anchored by The Home Depot and SuperTarget. This new development is being built just off Interstate 94 at the proposed intersection with Highway 610. This project is significant because it is adjacent to the new hospital, the first to be built in Maple Grove in more than a decade. This area would have been considered a third-tier suburb 4 or 5 years ago but is now considered a primary area for development of all kinds. Where is the majority of development taking place? Why is this area doing well? • Maple Grove and Rogers, Minnesota. The expansion of the cities is moving west towards St. Cloud, Minnesota. Also, there has been a tremendous residential growth along the Interstate 94 corridor. Residential growth will continue, as the light rail transit will connect St. Cloud to the Twin Cities. What area do you expect to be the next big retail development market? Why? • Blaine, Minnesota. It is already being heavily developed with the proposal of a new Vikings Stadium. When that gets approved, housing and retail developments are going to be off the charts. The outer-edge suburbs of the Minneapolis side of the Twin Cities will be developed before the northeast and southeast corners of the freeway loop are developed. Blaine has access to both Minneapolis and St. Paul. Please describe the retail leasing activity in your area. • Retail leasing remains strong, as it has been during the last 5 years; there is significant interest in new retail developments, which are filling up fast. They are generally built on a speculative basis following housing trends and growth but are generally full upon completion. • Many retail strips next to supercenters are pre-leased before construction even begins. Please give a measure of retail vacancy rates. Please give a measure of available sublease space. • See attached vacancy chart. What types of retailers should look into your market in the coming year? What type of retail is needed? • There is money to be made with most national chains coming to this market. The outer edges of the Twin Cities are growing fast; development is rapid. Nighttime entertainment options on the outer edges of the cities is next, as traveling to the cities' downtowns is too far. • Independent local businesses are strongly needed. Retail growth is presently dominated by national chains. New retail and residential properties substantially lack in character and differentiation. Would you like to make any additional observations about the retail market in your area? • Existing retail centers will continue to be updated to compete with the appeal of the new outer-edge lifestyle developments. Watch the continued spread of national retailers to new developments in all corners. • With increased traffic congestion, the downtown markets are suffering, and congestion continues to worsen daily. Outer-edge cities are quickly growing, and large retail development can be built and supported by its surrounding areas. • As new housing begins to decline, retail developers will have a chance to catch up. The big question will be whether population and housing growth are able to sustain retail development at the current levels.

Minneapolis/St. Paul Industrial Submitted by Eric Dueholm, vice president — industrial with Minneapolis-based Grubb & Ellis/Northco Real Estate Services. Posted 12-28-05. click here to see chart What area is your expertise? • Minneapolis/St. Paul Metro Area What trends do you see presently in industrial development in your area? • Currently there is a demand for well-located warehouse space. Absorption has been positive for the past year and a half in all sectors and submarkets. This has caused vacancy rates to drop and has spurred new construction. What type of industrial product is doing well in your area? • Warehouse/Distribution Who are the active industrial developers in your area? • CSM, Duke Realty and MYB Please name one or two significant industrial developments in your area. What impact will these projects have on the market? • Diamond Lake Industrial Center developed by MYB, located in Rogers. The development includes three 260,000-square-foot warehouse/distribution buildings. It is significant to market because it was the first truly speculative industrial construction in several years. The first two buildings are nearly 100 percent leased. • Crosstown North Business Center XII developed by Duke Realty, located in Brooklyn Park. The development features a 324,000-square-foot general industrial building. • Lexington Preserve in Blaine being developed by CSM. A 187,000-square-foot speculative building has just been completed, and the park can accommodate up to 850,000 square feet. Where is the majority of development taking place? Why is this area doing well? • The majority of development is occurring in the northwest/northeast. This is due to the ease of access to major freeway system and the availability of land. What area do you expect to be the next big industrial development market? Why? • The Blaine area should experience the most significant increase in development, mostly due to the Lexington Preserve business park that began this year with the completion of the first building in a multi-unit development. This project could reach 850,000 square feet when finally competed over the next few years. Development will also continue to be strong in the Rogers area. Please describe the industrial leasing activity in your area. • Leasing activity has been steady in general. Decreasing manufacturing jobs have hampered activity slightly but due to the diverse nature of the Minneapolis/St. Paul economy, the industrial market doesn't rely on one industry. Please describe the industrial sales activity in your area. • Sales activity has been strong, with multiple buyers competing for investment projects and solid pricing on user sales. What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in 2006? • We expect a rise in interest rates to cause a leveling-off of both cap rates on investment projects and sales prices on user sales. We think a moderate rise in rates will occur in 2006 and that it will have a marginal effect on sales and new construction, but will not cause any significant slowdown. What industries do you expect to expand in 2006 to absorb a great deal of industrial space? What areas will be affected? • Biomedical and medical device manufacturing companies will continue to expand in the market. Would you like to make any additional observations about the industrial market in your area? • We expect continued absorption throughout 2006 throughout all industrial product types, with well-located distribution space leading the way. Increased interest rates will cause both cap rates and sale prices to level off, but activity should remain strong. Increasing land prices and construction costs will limit the level off new speculative construction.

Metro Minneapolis/St. Paul Office Bruce Submitted by David Bruce, SIOR, partner with the Minneapolis office of The C. Chase Company/CORFAC International and president of CORFAC International. Posted 4-4-06. What area is your expertise? • the metropolitan Minneapolis/St. Paul office market What trends do you see presently in office development in your area? • potentially mixed-use development with office, retail and housing uses Who are the active office developers in your area? • Opus Corporation, Ryan Companies, Hines and Duke Realty Corporation Please name one or two significant office developments in your area. What impact will these projects have on the market? • The Bridges of St. Paul, which is being developed by JCT Group, will be a large mixed-use project incorporating retail, office, residential and entertainment space. St. Paul Riverfront is planned for the near future and will have significant impact on the downtown St. Paul riverfront. • Duke's Norman Point II, a 322,000-square-foot office building on 494/100, will be the first new office building in the southwest quadrant (SWQ) in 6 years. • Another development is The New Viking (NFL) stadium complex, a $1.5 billion mixed-use project offering retail, office and residential space in Blaine, a northern suburb of Minneapolis. Where is the majority of development taking place? Why is this area doing well? • Available land and traffic is in the SWQ and northwest quadrant (NWQ). What area do you expect to be the next big development market? Why? • SWQ is always an active market. I expect it to continue. Conversion of industrial buildings and use of difficult parcels of land will continue. NWQ is and will continue to be strong because there is available land, and the population is growing that way. Also, the new North Star Rail Line benefits commuters. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • Large Class A spaces are doing well in the southwest metro areas as well as the central business district. Vacancy of these larger spaces is low at 6 to 7 percent. The overall market vacancy is 9 to 10 percent because nothing has been built in the last 6 or 7 years. Please give a measure of office vacancy rates. Please give a measure of available sublease space. Minneapolis — 9 to 10 percent vacancy — down from 12 to 13 percent during the last 12 months Larger Class A space — 6 to 7 percent St. Paul measures slightly higher in all categories. What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in 2006? • Interest rates will have somewhat of an impact but won't be a significant driver of demand. They are not significant for the near future. I think they will hover near where they are to slightly higher. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? • Job growth is very important and is a significant demand driver. The Twin Cities traditionally dodge very high or very low unemployment rates, hovering below the national average/narrow range. Job growth is good in this area. The metro Minneapolis unemployment rate for December 2005 was 4.2 percent and for January was 4.1 percent. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in 2006 to absorb a great deal of office space? What areas will be affected? • Target is absorbing a significant amount of space in downtown Minneapolis with its corporate headquarters. Would you like to make any additional observations about the office market in your area? • The Minneapolis/St. Paul area has an inordinate amount of corporate headquarters for its size (approaching 20): General Mills, Pillsbury, Cargill, Best Buy, Target, Regis Corporation, Supervalu, Medtronic and 3M. This situation will continue to generate office needs. The quality of life here entices college graduates to stay in the area, and with the general work ethic, that creates good job growth. Capital formation is also good here; venture capitalists promote corporate initiatives.