Cushman Wakefield Ind Minneapolis 4q09

8/8/2019 Cushman Wakefield Ind Minneapolis 4q09

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MINNEAPOLIS, MN INDUSTRIAL REPORT 4Q09 1

ECONOMY

The Manhattan office market continued to tighten during the first half of 2007, extending

strengths exhibited during the second half of 2006. Steady employment growth contributedto positive absorption of available space and rapidly escalating asking rents.

The New York City economy expanded at a healthy pace during the first six months of theyear, led by strong gains in office-using employment. Data available through the end of

May show that the City has added nearly 16,800 jobs in industries that are key to thecommercial office market, with financial services and professional business services adding

7,400 and 5,500 jobs, respectively. This resulted in increased demand for office space in amarket that was already the tightest it had been since the first quarter of 2001.

The year began with 26.1 million square feet available throughout Manhattan. By the end ofJune, available space had fallen precipitously to 20.8, a decline of 20.5%. This diminishing

availability of space has been the story of the market; April 2007 was the only month in thepast year that did not record a month-to-month decline of at least 122,000 square feet. As

a result, Manhattans overall vacancy rate has tumbled to a six-year low, closing the mid-year at 5.3%.

OVERVIEW

In this environment, it is no surprise that asking rates have skyrocketed. Up 36.2% from a

year ago, Manhattans overall total average asking rent closed the first half of 2007 atanother record-high: $59.17 per square foot. Thus far this year, rents have increased by anaverage of $1.44 each month since January, breaking the old record set back during the

second and third quarters of 2000. The rapid pace of rental rate growth has extendedthroughout Manhattan. In every submarket but one, overall rents have registered double-

digit percentage increases from a year ago. Chelsea, up 4.2%, was the only exception.

On a cautionary note, however, leasing activity throughout Manhattan was slower during

the first two quarters, partially attributable to both significantly higher rents and lack ofavailable space. With 11.8 leased year-to-date, 2007 activity trails last years total through

June by 5.4%, with Midtown trailing by nearly 20.0%. This suggests that tenants arepossibly beginning to search for lower-priced space in response to landlords hiking up rents

throughout market inventory.

OUTLOOK

This years leasing has been dominated by Manhattans leading industries. Financial services

firms (36.4%) and legal services firms (11.7%) accounted for nearly one of every two squarefeet leased from January through June. In April, Lehman Brothers Holdings, Inc. signedManhattans largest new lease in 2007, a 414,575-sf sublease at 1271 Avenue of theAmericas. The frequency of transactions with taking rents starting at or above $125.00

continued to climb: 18 such transactions year-to-date versus 21 signed in the four previousyears combined.

BEAT ON THE STREET

"Minnesotas economy with less reliance onthe farm sector, tends to behave more like thnational economy. As such, the globalrecession and rising productivity havereduced manufacturing employment by morethan 41,000 or 12.3% over the past year. Iexpect these job losses to halt as the stronggrowth in new orders translates into asomewhat stronger labor market.

-Dr. Ernie Goss, Creighton University

ECONOMIC INDICATORS

National 2008 2009F 2010

GDP Growth 0.4% -2.5% 2.3%

CPI Growth 3.8% -0.4% 1.7%

Regional

Unemployment 5.2% 7.9% 8.1%

EmploymentGrowth

-0.2% -3.6% 0.1%

Source: Moodys | Economy.com

MARKET FORECAST

ABSORPTION will be restrained but willturn positive in 2010 as corporationsrespond to modest economic expansion.

OVERALL VACANCY is expected to

decline as tenants gradually absorb

vacant space in the market.

DEVELOPMENT activity is forecasted to

remain muted until the supply of

available space tightens.

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

2003 2004 2005 2006 2007 2008 2009

psf/yr

5.0

7.0

9.0

11

13

15Rental Rate Vac ancy Rate

OVERALL RENTAL VS. VACANCY RATES

MINNEAPOLIS, MN INDUSTRIAL REPORT

4Q09

ECONOMY

A recent survey of Minnesota manufacturers conducted by the Minnesota Department

of Employment and Economic Development (DEED) and the Federal Reserve Bankof Minneapolis indicated that the manufacturing industry declined more thananticipated in 2009. More than 70.0% of the responding manufacturers experienced

declining orders and profits during the year. Employment levels and businessinvestment dropped as a result.

While the outcome of this survey illustrates the depth of the economic downturn in2009, conditions in Minnesota are improving. Employers added 2,000 jobs in

November, and the state unemployment rate fell 0.2 percentage point to 7.4%

according to DEED. This rate was 2.6 percentage points below the nationalunemployment rate of 10.0% in November. Also, the Minnesota Business ConditionsIndex climbed to 57.1 in November from Octobers 55.9. This reading was the fourth

straight month that Minnesotas index has climbed above neutral growth according toCreighton University. An index above 50.0 forecasts an expanding economy for thenext three to six months.

OVERVIEW

Declining orders, profits and production restrained business expansion and, in manycases, triggered contraction, negatively impacting occupancy in the local industrial realestate market in 2009. Overall vacancy jumped 2.3 percentage points to 12.5% after

the market endured a 26.7% increase in available sublease space and 1.2 million squarefeet (msf) of negative absorption during the past four quarters.

Rising vacancy and limited tenant demand pushed average asking rental ratesdownward in 2009 after experiencing five consecutive years of growth. Over the past

12 months, rental rates in manufacturing properties dropped 5.1% to $5.23 per squarefoot (psf) while flex rates fell 4.4% to $7.35 psf. Warehouse/distribution rents held

relatively firm, dropping 1.1% to $4.70 psf.

FORECAST

Respondents to the DEED manufacturing survey were guarded but somewhatoptimistic in their outlook for 2010. Orders, production level and productivity are all

expected to expand while most respondents indicated that prices, employment andinvestment in facilities or equipment would hold steady through the year. Results of

this survey coupled with the positive Business Conditions Index readings point to an

improved economy in 2010.

We expect trends in the local industrial market to trail the improving economy slightlythrough the year as businesses maximize their existing space prior to expanding. Newconstruction activity has stopped, restricting the supply of new space delivered to the

market which will keep vacancy in check. Overall vacancy will slowly descend withimproved leasing demand as corporations gradually seek opportunities to improve

their local real estate holdings. Asking rates will continue to fall and rent concessionswill be prevalent as landlords enhance their tenant retention and attraction strategies.

While tenant demand will be far from robust, the local industrial real estate market willexperience a modest recovery through 2010.


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MINNEAPOLIS, MN INDUSTRIAL REPORT 4Q09

OVERVIEW

2009 INVENTORY BY PROPERTY TYPE

26.2%18.6%

55.2%

Warehouse/Distribution Manufacturing Flex

Warehouse/distribution space is the fastest-growing segmentof the Minneapolis/St. Paul industrial market, totaling 22.3msf. The inventory grew 2.0% over the past year as 429,260

sf of new space were delivered.

The manufacturing and flex inventories held steady through

2009 at 47.1 msf and 15.8 msf, respectively as very littledevelopment activity occurred.

OVERVIEW

DIRECT RENTAL RATES vs. AVAILABLE SPACE

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

4Q07 2Q08 4Q08 2Q09 4Q09

psf/yr

6.0

7.0

8.0

9.0

10.0

11.0

msf

Flex Rent MF Rent

W/D Rent Available Space

Overall vacancy in manufacturing properties climbed 2.1percentage 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.

MINNEAPOLIS

RENTAL vs. OVERALL VACANCY RATES

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

4Q07 2Q08 4Q08 2Q09 4Q09

psf/yr

2.0%

5.0%

8.0%

11.0%

14.0%

17.0%

20.0%

Rental Rate Vacancy Rate

*Average asking warehouse rent in all property types

Minneapolis is the tightest industrial submarket in the metro

area with a 7.0% overall vacancy rate, up 1.9 percentage poiover the year as the submarket experienced 266,637 sf ofnegative absorption.

Warehouse/distribution properties experienced a 6.0percentage point jump in overall vacancy to 9.9% asoccupancy declined by 171,881 sf.

NORTHEAST


$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

4Q07 2Q08 4Q08 2Q09 4Q09

psf/yr

2.0%

5.0%

8.0%

11.0%

14.0%

17.0%

20.0%



The Northeast was the only submarket in the metro area toexperience positive absorption during 2009. Overall vacan

dipped 0.2 percentage points to at 10.3% as a result.

Tenant demand for flex space generated 156,266 sf ofabsorption while manufacturing properties endured 123,08

sf of negative absorption. Warehouse/distribution demandwas flat. Submarket absorption totaled 23,382 sf for the ye


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NORTHWEST


$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

4Q07 2Q08 4Q08 2Q09 4Q09

psf/yr

2.0%

5.0%

8.0%

11.0%

14.0%

17.0%

20.0%



Overall vacancy in the Northwest submarket climbed 2.6

percentage points to 12.6% after experiencing 488,430 sf ofnegative absorption during 2009. This rate represents thehighest vacancy reported in over three years.

Warehouse/distribution vacancy jumped 6.2 percentagepoints to 14.0% after experiencing 346,769 sf of negativeabsorption. Manufacturing and flex properties experienced

47,739 sf and 93,922 sf of negative absorption respectively.

SOUTHEAST


$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

4Q07 2Q08 4Q08 2Q09 4Q09

psf/yr

2.0%

5.0%

8.0%

11.0%

14.0%

17.0%

20.0%



At 18.7%, the Southeast submarket contains the highestoverall vacancy rate in the market, up 4.4 percentage pointsfrom year-end 2008.

Manufacturing properties experienced 196,507 sf of negativeabsorption, generating a 3.7 percentage point vacancyincrease to 11.4%. Warehouse/distribution vacancy climbed

8.0 percentage points to 29.3% after a vacant 282,100 sfproject was delivered in the first half of 2009.

SOUTHWEST


$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

4Q07 2Q08 4Q08 2Q09 4Q09

psf/yr

2.0%

5.0%

8.0%

11.0%

14.0%

17.0%

20.0%



Tenant demand staged a modest recovery in late 2009,

generating 120,621 sf of positive absorption during the passix 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

13.4%. This represents the highest vacancy in six years.Warehouse/distribution vacancy slipped 3.3 points to 23.5%

ST. PAUL/MIDWAY


$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

4Q07 2Q08 4Q08 2Q09 4Q09

psf/yr

2.0%

5.0%

8.0%

11.0%

14.0%

17.0%

20.0%



Despite a 2.8 percentage point increase through 2009, the S

Paul/Midway submarket contains one of the metro areastightest 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/distributionproperties experienced 27,302 sf and 27,181 sf of negativeabsorption, respectively.


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For industry-leading intelligence to support your real estateand business decisions, go to Cushman & WakefieldsKnowledge Center atwww.cushmanwakefield.com/knowledge

Cushman & Wakefield, Inc.11095 Viking Drive, Suite 240Eden Prairie, MN 55344(952) 465-3355

Please consider your environmental responsibility before

printing this report.

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

This report contains information available to the public and has been reliedupon by Cushman & Wakefield on the basis that it is accurate andcomplete. Cushman & Wakefield accepts no responsibility if this shouldprove not to be the case. No warranty or representation, express or implied,is made to the accuracy or completeness of the information containedherein, and same is submitted subject to errors, omissions, change of price,rental or other conditions, withdrawal without notice, and to any speciallisting conditions imposed by our principals.

2010 Cushman & Wakefield, Inc. All rights reserved.


MARKET/SUBMARKET STATISTICS

OVERALL YTD YTDNO. OF VACANCY UNDER CONSTRUCTION OVERALL

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 $4.45Southwest 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

DIRECT WEIGHTED AVERAGENET RENTAL RATE*

*Rental rates reflect $psf/yearMF = Manufacturing W/D = Warehouse/Distribution

MARKET HIGHLIGHTS

BUILDING SUBMARKET TENANT SQUARE FEET PROPERTY TY

3880 Fourth Avenue Southwest Cokem International 158,000 Warehouse/Distributio

7601 Setzler Parkway Northwest Graybar Electric 120,048 Warehouse/Distributio

9210 Wyoming Avenue Northwest Target Printing 86,941 Manufacturin

13150 George Weber Drive Northwest Blu Dot 61,000 Warehouse/Distributio

Eagandale Crossing Southeast Buffets Inc. 44,000 Fle

Atlas Business Center II Southeast Bekins-TC Moving Systems 37,708 Warehouse/Distributio

6601 Parkway Circle Northwest Roberts Hamilton Co. 28,000 Manufacturin

Fridley Interstate Distribution Center Northwest Innovative Laser Technologies 27,938 Warehouse/Distributio

New Brighton Commerce Center Northeast Comtrol 26,763 Fle

990 Apollo Road Southeast Material Processing Corp. 26,133 Manufacturin

BUILDING SUBMARKET BUYER SQUARE FEET PURCHASE PR

13201 Wilfred Lane Northwest CBRE Investors 341,040 $15,340,0

7101 Louisiana Avenue Southwest Cobalt Industrial REIT 195,754 $7,900,0

8775 Zachary Lane Northwest Cabot Properties 192,924 $10,350,0

2800 Northwest Boulevard Northwest Keystone Properties 163,238 $10,500,0

7450 Metro Boulevard Southwest City of Edina 138,728 $7,600,0

410 11th Avenue South Southwest Ugorets 110,076 $2,800,0

1001 Johnson Parkway St. Paul/Midway Hmong Village LLC 107,730 $3,500,0

2890 Center Point Drive Southeast Schadegg Development 101,851 $8,450,0

2700 Blue Water Road Southeast Blue Water Rd LLC 99,353 $5,800,0

2778 Cleveland Avenue Northeast Twin Lakes IV LLP 99,176 $9,275,0

BUILDING SUBMARKET MAJOR TENANT SQUARE FEET COMPLETION DA

First Park Lakeville Distribution Center Southeast Speculative 282,100 6/

AMB Rogers Distribution Center Northwest Blu Dot 147,160 5/1701 West 94th Street Southwest Speculative 65,000 3/

BUILDING SUBMARKET MAJOR TENANT SQUARE FEET COMPLETION DA

N/A

SIGNIFICANT 2009 NEW LEASE TRANSACTIONS

SIGNIFICANT 2009 SALE TRANSACTIONS

SIGNIFICANT 2009 CONSTRUCTION COMPLETIONS

SIGNIFICANT PROJECTS UNDER CONSTRUCTION

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Cushman Wakefield Ind Minneapolis 4q09