MSP Market Outlook 2014[2]

MINNEAPOLIS/ST. PAULMARKET OUTLOOK 2014

2014, CBRE, Inc.

Welcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

CBRE Minneapolis/St . Paul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Minneapolis Office - Downtown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Minneapolis Office - Suburban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

St. Paul Office - Downtown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

St. Paul Office - Suburban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Global Corporate Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Office & Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Multi-Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Debt & Structured Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Tertiary Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Data Center Solutions Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Valuation & Advisory Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

CBRE Service Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

TABLEOF CONTENTS

2014, CBRE, Inc.

As we look back on 2013, we see a year of growth growth in our local economy, growth in our CBRE team and growth in our platform of services to you, our business clients and partners. We value our relationships and know that our success is directly related to yours. We are excited to share with you our 2014 Outlook, a high-level compilation from our leaders providing the past, present and future of the real estate market.

Recovery continued in 2013 with the addition of 39,000 new jobs and a reduction in the unemployment rate from 5.40% to 4.60%. The office market continued to languish. Workplace strategies and space optimization were key drivers. Solid indus-trial absorption decreased vacancy rates to 5.05% spurring a number of speculative developments and increased spec land purchases.

We anticipate the recovery to continue in 2014. Net absorption in the office, industrial and retail sectors is projected to out-pace supply leading to multiple new development opportunities.

Our Minneapolis/St. Paul office welcomed the acquisition of two new retail brokers in 2013 strengthening our local platform. Additionally, we added talent to our Project Management, Industrial Brokerage and Property Management teams, all bringing impressive qualifications and experience. Whether the scope is local or global, we are confident that our CBRE team provides the relevant experience, market knowledge and proven track record to help our clients make the most informed business decisions.

Thank you for your support and trust in 2013. Cheers to all for continued growth and success in 2014.

Blake Hastings Managing Director, Brokerage

Matt Nicoll Managing Director, Asset Services

3 | MINNEAPOLIS MARKET OUTLOOK 2014

MESSAGEFROM MANAGEMENT

2014, CBRE, Inc.

Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 965

Real Estate Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

Property Sales (# transactions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

Property Leasing (# transactions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799

Commercial Properties Under Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21M SF

Loan Originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $562.2M

Project Management Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 totaling $72.3M

Valuation and Advisory Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,458

Bloomington, MN Office Minneapolis, MN Office


LOCAL MARKETMINNEAPOLIS/ST. PAUL

2014, CBRE, Inc.

Significant Transactions

Total Building SF Type Building

Wells Fargo 350,000 SF Renewal Northstar East

Oracle 137,000 SF Renewal Oracle Centre

Gray Plant, Mooty 109,000 SF Renewal IDS Center

Schwegman, Lundberg & Woessner PA

42,434 SF Renewal TCF Tower

* Source: CBRE, Inc.


Downtown Minneapolis Average Asking Lease Rates

15.00

14.50

14.00

13.50

13.00

12.50

12.00

11.50

11.00

10.50

10.00

Class A Class B


Downtown Minneapolis Net Absorption

120,000

90,000

60,000

30,000

0

(30,000)

Q212

Q212

Q112

Q112

Q412

Q412

Q312

Q312

Q113

Q113

Q213

Q213

Q313

Q313

Q413

Q413

Ask

ing

Rate

($)


2013 REVIEW As predicted, 2013 was another year of modest improve-

ment in the Downtown Minneapolis office market.

Total positive absorption among all building classes was over 76,330 square feet, or less than 1.00% of the office base.

Class B and C buildings continued their comeback.

The Class A submarket, which has been the vanguard of downtowns office recovery, was the biggest loser as companies continued to downsize and relocate to more economical, well-positioned Class B options.

Vacancies below the 20th floor in the Class A submar-ket increased 4.30%, leading to continued competition among landlords for new tenants.

Most tenant relocations continued to reflect some degree of upgrading.

In terms of property sales, nine downtown office buildings were sold in 2013, which represented an unprecedented 18.00% of the entire office universe in the submarket: Plaza VII, IDS, RBC Plaza, Gaviidae II, Gaviidae I, Oracle and International Centre, Neiman Marcus Building, Ca-nadian Pacific Plaza, 510 Marquette and TriTech.

2014 OUTLOOK Despite the low unemployment rate in Minneapolis/St.

Paul of 4.60%, a sputtering economy along with cautious employers will set the stage for another year of modest recovery in the Downtown Minneapolis office market.

As net rent spreads continue to widen between Class A renewals and Class B alternatives, reverse migration will continue.

MINNEAPOLIS OFFICEDOWNTOWN

Written By: Mark McCary, Senior Vice President Reed Christianson, First Vice President Erin Wendorf, Senior Associate

2013 Trend 2014 Forecast

Absorption

Vacancy

Quoted Rate

Concessions

* The arrows are trend indicators from a year over year time period and do not represent a positive or negative value.

2014, CBRE, Inc.


MINNEAPOLIS OFFICESUBURBAN Written By: Brian Helmken, First Vice President

Brian Wasserman, First Vice President

2013 REVIEW The Minneapolis suburban office market located in the

I-394 and I-494 corridors includes the west and south-west suburbs of St. Louis Park, Minnetonka, Plymouth, Eden Prairie, Bloomington, Edina, Richfield, Golden Valley and Uptown.

In 2013, the market experienced four consecutive quar-ters of positive net absorption, totaling nearly 156,000 square feet.

Overall, vacancy rates increased two percentage points rising from 15.00% in 2012 to 17.00% in 2013. This jump is mainly due to the addition of a 300,000-square-foot vacant, single-tenant building that is being mar-keted as a multi-tenant property.

Vacancy increased in Class A and Class B properties to 16.00% and 18.00% respectively, while vacancy re-mained much higher for Class C buildings at 21.00%.

Class A tenants exhibited economic strength by provid-ing most of the suburban growth with significant lease extensions and expansions similar to 2012.

New leasing activity was spread fairly evenly between the I-394 and I-494 submarkets.

Net asking rates for Class A remained stable for all of the western markets with I-394 leading at $16.16, I-494 at $15.48 and the Northwest at $11.10. Class B saw a slight increase to $11.87 on I-494, $12.49 on I-394 and $10.08 in the Northwest market.

2014 OUTLOOK In 2014, we expect to see continued downward pres-

sure on employee per rentable square foot ratios. For-tune 500 firms continue to employ alternative workplace strategies with space reduction goals as high as 30.00%.

Overall vacancy to decline modestly. Rates will rise as premier properties push the $20.00 net per square foot level in certain markets.

The bifurcation trend of Class A properties will con-tinue in 2014. Premier Class A properties have almost no meaningful vacancy, often nearby Class A properties have above market vacancy rates. The struggling Class A properties will slowly heal in 2014, provided they offer a better value proposition than upgraded Class B assets.

Deal costs remain stable with reduced concessions in premier properties due to their high occupancy levels.

Multi-tenant office absorption will fare better than 2013.Absorption relative to the size of base continues to be anemic.

The current glut of large Class B and single-story office properties with high vacancy continues. It is likely there will be more large properties coming to market.

Despite the underlying solid fundamentals in the premier Class A market, no new speculative construction will commence in 2014. There is currently a $3.00 to $4.00 spread in current rents versus the rents necessary for new construction pro-forma. Developers will continue focus-ing efforts on single-tenant opportunities and selected redevelopment of troubled assets.

Quality multi-tenant office development sites continue conversion to multifamily or single-tenant build-to-suit.


Absorption

Vacancy

Quoted Rate

Concessions


2014, CBRE, Inc.


Downtown St. Paul Net Absorption

100,000

0

(100,000)

(200,000)

(300,000)

(400,000)

(500,000)

20052003 2004 2006 2008 20092007 2010 2011 2012 2013

(449,1

60)

(101,8

50)

(109,3

00)

(100,6

00)

(37,3

44)

(115,8

30)

(103,7

10)

98,0

45

57,4

22

28,4

06

10,8

54


2013 REVIEW The 2013 Downtown St. Paul CBD office market re-

bounded nicely from that of previous years, albeit at a slow pace.

Overall vacancy decreased from 23.00% year-end of 2012 to 18.80% year-end of 2013 a very positive sta-tistic.

The net absorption in 2013 was half that of 2012 but still positive. The year ended at 10,854 square feet of net absorption. We now have two consecutive years of posi-tive absorption after four negative years.

Renewals were the focus of the market, some of which included rightsizing. Infor, USBank, Springsted and TKDA all renewed their leases which aided the recovery.

Also assisting in the recovery, new leases were added to the market including MNSure, Arch Insurance, Regus and West Academic. The relocation and expansion of St. Paul Foundation and Bush Foundation helped the market as well.

Sales were the buzz of the market which included US Bank Center, 180 Kellogg, Gilbert, 350 St. Peter and The Minnesota Club.

Lease rates continued their slow increases, as in previous years. Year-end net office rates were at $12.42 for Class A and $10.28 for Class B. Gross rates ended the year at $22.28 for Class A and $19.58 for Class B.

2014 OUTLOOK We predict a continual gradual improvement in market

conditions. Vacancy will decline by approximately 2.00% to 3.00% by year-end 2014.

Many trending issues affecting the office market include technology, hoteling, workplace strategies, employee re-tention and attraction, creative open plan design popu-larity, mass transit, core city rebound, low interest rates, low cap rates, low unemployment, competition from oth-er states, connectivity, increasing construction costs and lead time, increasing demand for plug and play space, and most importantly, efficiency in space.

Shopping the market early in 2014, is a 45,000-square-foot new requirement, a 35,000-square-foot relocation from the suburbs, a 125,000-square-foot renewal, and a 25,000-square-foot renewal, all of which helps the perception of activity.

Major sales and lender involvement will continue into 2014. Currently seven properties are for sale on the market ranging from 100,000 to 350,000 square feet. Redevelopment sites are still available including Macys and Woolworths.

Owner-users have recently discovered or are following the herd mentality, that long-term real estate ownership far outweighs leasing. This is true for the long-term play-ers that are not quarterly results driven. Short-term result entities are still required by Wall Street to lease, provid-ing ultimate flexibility and anticipating business returns higher than typical commercial real estate returns.

ST. PAUL OFFICEDOWNTOWN Written By: Jerry Driessen, Vice President

Joe Hughes, Senior Associate


Absorption

Vacancy

Quoted Rate

Construction



Total SF Type Building

US Bank 127,000 SF Lease 101 E 5th

180 Kellogg 725,000 SF Sale Post Office

US Bank Center 360,000 SF Sale 101 E 5th

Info (Lawson) 140,000 SF Lease Lawson Commons* Source: CBRE, Inc.

2014, CBRE, Inc.


150,000

100,000

50,000

0

(50,000)

(100,000)

(150,000)

20052003 2004 2006 2008 20092007 2010 2011 2012 2013

(43,1

60)

(103,9

10)

9,6

56

(65,2

01)

31,7

78

(94,8

55)

(93,5

59)

(1,4

45)

(94,8

29)

23,4

39

136,5

31


ST. PAUL OFFICESUBURBAN Written By: Jerry Driessen, Vice President

Joe Hughes, Senior Associate

2013 REVIEW The suburban St. Paul/East metro office market in 2013

also continued a slow and gradual improvement.

Absortion was up from 23,000 in 2012 to 136,500 in 2013. This again is the lead story, proving to be more than four times larger than 2012.

Vacancy improved in both Class A and B buildings, de-creasing from 24.00% to 21.00% in Class A, and 28.50% to 25.00% in Class B. Overall vacancy for the suburban St. Paul/East metro submarket was down one percentage point from 2012 to 28.70%.

Significant large blocks of space are on the market including those that are not included in the multi-ten-ant numbers. These include the 450,000-square-foot State Farm Regional Office; 200,000-square-foot Imation; 250,000-square-foot Delta Airlines; and 350,000-square-foot Hartford Insurance.

Lease rates on the net basis slowly increased in 2013. Class A saw a 1.00% increase to $12.66, while Class B saw an 11.00% increase to $11.43.

Midway vacancy inched up a bit from 9.50% in 2012 to 10.30% in 2013. Class A net lease rates are up sig-nificantly to $14.07. Absorption in 2013 was half of the 2012 mark.

Overall vacancy in the Burnsville, Eagan, Apple Valley area increased from 17.00% in 2012 to 20.00% in 2013. Absorption was significantly off from the 2012 mark.

2014 OUTLOOK Suburban St. Paul is projected to continue its slow im-

provement in 2014. No new multi-tenant development larger than 30,000 square feet is currently planned to be built. Build-to-suits continue to be built along with small-er multi-tenant office, medical and tech/flex buildings.

We predict a 2.00% to 3.00% decrease in overall vacan-cy. That could change if siginificant vacant owner user buildings get renovated into the mutli-tenant competitive set.

Lease rates will continue to improve due to no new con-struction and increasing replacement costs.

Office tenants over 50,000 square feet who are shop-ping in the East metro (not CBD) in early 2014 will have nine options to choose from in addition to the tech heavy finish spaces.


Absorption

Vacancy

Quoted Rate

Construction


Suburban St. Paul Net AbsorptionSignificant Transactions


Roseville Corporate 250,000 SF Sale MT Office

Lockheed 75,000 SF Lease Eagan Tech

1275 Red Fox 75,000 SF Sale MT Office

Radiant Financial 55,000 SF Sale Ardenwoods


2014, CBRE, Inc.


GLOBAL CORPORATESERVICES Written By: Charles Caturia, Senior Vice President

2013 REVIEW Corporate real estate decisions continued to follow in

the direction of the overall economy, which were seen locally in cautious but positive absorption rates.

Companies became increasingly cost-focused in the past year, with an emphasis on efficient space utilization and a downward migration to lower quality spaces.

Layoffs among some of Minnesotas largest corporations have been a constant source of discus-sion in 2013. Target, Best Buy and Supervalu have shown their desire to stay lean in the face of decreasing margins.

The U.S. unemployment rate has dipped below 7.00% for the first time in five years, though some of the reduc-tion has been a result of people simply dropping out of the work force.

The Fed has finally signaled a tapering of its quanti-tative easing program which has kept interest rates at historical lows.

Asking rates continued their upward climb in 2013, driven in large part by the lack of new construction and the decreasing availability rate.

2014 OUTLOOK The arrival of new corporate entities like Shutterfly, the

organic growth of companies like Prime Therapeutics, and the new construction of the Vikings Stadium and the Stadium Village anchored by Wells Fargo should all continue to add momentum.

Many U.S. manufacturers driven by technological advances, cheaper energy and quality concerns are reshoring operations, which will add to further local and national advances.

As the overall office and industrial product supply re-mains relatively unchanged and vacancies gradually decline, rates will increase putting more pressure on managers to use space more effectively.

Movement toward flexible work space will continue with fewer private offices, smaller cubicle configurations to allow for additional desk spaces and a significant in-crease in the amount of non-dedicated work area.

2014 will see a renewed examination of mobile and remote workforce as companies reengineer their meth-ods of operation.

Continued efforts to centralize corporate real estate functions will be a focus as a means of better cost con-trolling and uniform implementation as well as enforce-ment of best practices portfolio wide.

Greater emphasis will be put on labor analytics, in-cluding availability, quality and cost of the workforce, when selecting new locations for operations. Business will also develop new efforts to create functional and flexible space to attract and retain the new millennial workforce.


Absorption

Vacancy

Quoted Rate

Construction




Dorsey & Whitney 250,000 SF Renewal 50 South Sixth

Be the Match 240,000 SF Relocation 524 North 5th

Kroll Ontrack 195,000 SF Renewal Multiple

AIMIA 143,122 SF Renewal Plymouth Corporate Center

Infor, Inc. 142,761 SF Renewal Lawson Commons


2014, CBRE, Inc.


CAPITAL MARKETSOFFICE & INDUSTRIAL Written By: Steven Buss, Executive Vice President

Ryan Watts, First Vice President

2013 REVIEW

OFFICE 2013 brought 11 new investors to the Minneapolis of-

fice market. Buyers migrated from both Gateway office markets with much lower yields and from regional mar-kets with less attractive space market fundamentals.

Minneapolis CBD sales totaled $574 million and repre-sented 65.00% of the $890 million in total 2013 multi-tenant sales volume. Notable sales in the Minneapolis CBD included the $255 million sale of the IDS Center, the $126.5 million sale of the RBC Plaza and Gaviidae Common, and the $73 million sale of the Oracle and International Centre.

The largest suburban sales were high quality proper-ties leased to investment grade tenants. Notable sales included the $123 million sale of Cargill at Excelsior Crossings and United Health Cares sale/leaseback of two buildings for $146 million.

INDUSTRIAL Pension Fund Advisors, Life Companies and Private

Investors are the most active buyers for high quality, low finish properties with 24 and greater clear heights. Cap rates for the best 32 properties are now 6.00% to 6.20% and the best quality 24 clear properties are trading at 6.25% to 6.50% cap rates.

High quality Minneapolis only portfolios are achieving pricing premiums compared to multi-market portfolios including Minneapolis with other assets in less desir-able secondary industrial markets.

2013 sales and current on market high finish sales, in-cluding the Liberty and Hines portfolios, will result in over $240 million of high finish sales; this is the high-est level since 2005. High finish portfolios are being targeted by local operators with institutional capital partners as well as national equity funds attracted to the higher yields and the space market and economic recovery in the Minneapolis market.

2014 OUTLOOK

OFFICE Capital interest in Class B CBD assets and suburban

Class A properties will increase, placing downward pressure on cap rates.

Investors will increasingly recognize the attractiveness of risk adjusted returns in Minneapolis where there is strong GDP growth, above inflation market rent growth and virtually no new supply.

Cross border capital flows will increase as additional foreign investors arrive after observing the success of Canadian and middle eastern investors in acquiring and successfully operating assets in Minneapolis.

INDUSTRIAL Investment demand will increase for Class B light indus-

trial properties with clear heights ranging from 18 to 24 with infill locations.

Real estate investors including public REITs will consider speculative development as an alternative to buying ex-isting stabilized product.

Investor mindset will shift from cap rate compression to property operations. CBRE expects NOI increases re-sulting from vacant lease up and higher renewal rates to more than offset increases in long term interest rates.

* Source: Real Capital Analytics and CBRE Minneapolis Institutional Group 12.31.13

Minneapolis/St. Paul Industrial and Office Sale Activity Transactions over $5M

$800

$700

$600

$500

$400

$300

$200

$100

$0

Industrial Suburban Office CBD Office

2007 2012 20132011201020092008

0

534.4

268.8

105.8

525.7

647.6

602.2

93.1

48

4.1

282.2

111.0

276.7

321.4

258.7

88.7

568.9

161.1

220.5

383.3

574.3

57.5

Dol

lars

in M

illio

ns

2014, CBRE, Inc.


CAPITAL MARKETSRETAIL Written By: Jim Leary, Senior Vice President

Jeff Budish, Associate

2013 REVIEW Grocery anchored and investment rated, single-tenant

retail were the most sought after asset classes; cap rates for these product types compressed throughout the year.

All retail asset classes experienced NOI growth due to improved occupancy levels as well as rental rate growth. This, combined with the lack of new construc-tion, has forced investors to consider non-core product classes.

Institutional owners have spent much of the past year shaping portfolios by selling non-core assets and re-placing them with higher quality assets.

Private equity companies and individuals from coastal states have shifted their focus toward midwestern states with the hope of acquiring properties at comparatively higher returns. The trend started a few years ago, but increased measurably in 2013.

2014 OUTLOOK Investors will continue to focus on credit and operational

viability of individual retailers with a strong preference for centers where NOI is provided by daily needs retailers.

In spite of rising interest rates, cap rates on core retail investments will remain flat to slightly lower. This is due to current wide spreads between treasury rates and cap rates as well as the continued economic recovery.

Overall sale activity and pricing has reached pre-reces-sion levels, however, due to a lack of new construction and general shortage of supply, we anticipate sale activ-ity to remain flat to slightly declining in 2014. Pricing could increase due to continued demand from the REIT sector, increasing demand from private coastal investors shopping for higher yield and constrained supply.

Estate planning, portfolio shaping and maturing debt will continue to drive selling decisions; however, higher capital gains tax rates will cause investors to carefully weigh all options.

Regional malls and community centers will continue to reinvent themselves or slowly die off; this can be seen in projects such as Southdale, Northtown Mall and Mall of America, where excess surface parking is converted to both retail strip centers, structured parking, hospitality, dining and housing.

Investors will be focused on an increasingly narrow crite-ria for acquiring new product. Wall Street has obligated public REITs to better define themselves within a specific product type and private equity companies are creating funds which target specific retailers.

* Source: Real Capital Analytics

* Source: The Conference Board

Minneapolis/St. Paul Retail Sale ActivityTransactions over $2M

Single-Tenant Cap Rate Compression by Quarter(BBB- to AA+ Rated Retailers)

Consumer Confidence Index

$250

$200

$150

$100

$50

$0

Grocery StripMall/Other Single-Tenant

2007 2012 20132011201020092008

Dol

lars

in M

illio

ns

6 .9%

6.8%

6.7%

6 .6%

6.5%

6.4%

6.3%

6.2%

140

100

60

20

Q3 12 Q4 12 Q2 13Q1 13 Q3 13 Q4 13

2002

2004

2006

2008

2010

2012

2003

2005

2007

2009

2011

2013

Cap

Rat

e

Con

fiden

ce L

evel

(100 =

1985)


2014, CBRE, Inc.


Written By: Keith Collins, Senior Vice PresidentAbe Appert, Senior Vice PresidentTed Abramson, Senior AssociateLaura Hanneman, Client Services Specialist

2013 REVIEW

PROPERTIES OVER $5 MILLION 2013 was a notable year with the first urban sale since

2008, which also happened to be at the highest price per unit the market has seen.

For property sales of $30 million and greater, 33.00% were built in the 2000s, 17.00% in the 1990s, 22.00% in the 1980s, with the balance built prior to 1980.

Cap rates trended down, resulting in the first sub-5.00% cap rate at 4.51% for a newer urban property. Most suburban value-add properties were in the mid- to high-5% range, while Class C product was in the 6.75% to 7.25% range.

New construction was robust with the greatest activity in the past 20 years. In 2013, 4,300 units were delivered, as were six student housing projects totaling 490 units at the University of Minnesota.

Effective rent growth year over year as of the third quar-ter of 2013 was 3.80%, and occupancy remained at 97.00% or greater for ten consecutive quarters.

PROPERTIES UNDER $5 MILLION These properties continued to perform operationally. It

was by no means a banner year in transactions, but activity picked up significantly in the fourth quarter of 2013. Total transaction volume for $1 to $5 million properties was $66 million.

Cap rates continued to compress to 6.00% and some sub-6.00% based on in-place numbers for prime locat-ed Class B and C assets, to 7.50% for more challenging Class C locations.

Investors have in-place cash yield expectations of 6.00% to 8.00%. Buyers continue to be willing to pay up for value-add opportunities as they have seen posi-tive results in doing so.


Units Buyer

Stoneleigh at the Reserve Plymouth, MN 361

Weidner Apartment Homes

Promenade Oaks Eagan, MN 281

Nighthawk Properties/ Osprey Properties

Lake Calhoun City Minneapolis, MN 158 L&B Realty Advisors

The Barrington Woodbury, MN 282 CAPREIT

Southwind Village Burnsville, MN 320 Virtu


* Source: CBRE. Inc. and Marquette Advisors

Minneapolis/St. Paul Market Statistics

$1,000

$950

$900

$850

$800

$750

8.00%

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

2000

2007

2005

2012

2006

2013

2004

2011

2003

2010

2002

2009

2001

2008

Dol

lars

in M

illio

ns

Cap RatesAverage Rent Average Cap RateVacancy

6.11%

* Source: CBRE. Inc.

Minneapolis/St . Paul Sales Volume $5+ million transactions

$800

$700

$600

$500

$400

$300

$200

$100

$0

2000

2007

2005

2012

2006

2013

2004

2011

2003

2010

2002

2009

2001

2008

Dol

lars

in M

illio

ns

CAPITAL MARKETSMULTI-HOUSING

2014, CBRE, Inc.


Written By: Keith Collins, Senior Vice PresidentAbe Appert, Senior Vice PresidentTed Abramson, Senior AssociateLaura Hanneman, Client Services Specialist

2014 OUTLOOK

PROPERTIES OVER $5 MILLION Expect to see an increase in sales activity in 2014, par-

ticularly for urban core properties constructed in the past ten years and value-add opportunities.

Investors remain bullish on value-added potential for well-located 1980s suburban properties and will con-tinue to take advantage of attractive financing options. Life companies and commercial mortgage-backed se-curity companies will compete with agency lenders.

Physical vacancy (one of the lowest in the nation) will likely increase somewhat in 2014 as new supply enters the market.

Cap rates for new urban core properties will likely re-main sub-5.00%, and value-add 1980s vintage prop-erties should continue to trade in the high 5.00% to low 6.00% cap rate range.

Core plus deals are likely to remain stable in the 5.00% to 5.50% cap range.

Thirty-six projects are under construction totaling 6,300 units, and an additional 100 projects are planned or proposed totaling 15,600 units; many of which will not be built. Almost half of the new properties being built are located in the urban core areas of Minneapolis in-cluding Uptown, the North Loop and downtown (1.90% of the metro areas inventory).

All located near the University of Minnesota, five stu-dent housing projects totaling 959 units are under con-struction, and an additional six projects totaling 690 units are planned.

Class C asset activity will increase as yield seekers move to secondary locations and assets.

PROPERTIES UNDER $5 MILLION The small to midsize apartments will see an increase

in transaction volume. Many owners look to capitalize on current (last one to two years) NOI growth and the continued low interest rate environment.

With improving operations and the growing comfort level among consumers to remain renters or transi-tion away from home ownership (e.g. millennials, echo boomers, baby boomers), operations should stay strong.


New Development

Vacancy

Quoted Rate

Cap Rates


CAPITAL MARKETSMULTI-HOUSING

2014, CBRE, Inc.


DEBT AND STRUCTUREDFINANCE Written By: Joel Torborg, Vice President

Ben Bastian, Production Analyst

2013 REVIEW U.S. Treasury rates rose from their historic lows in 2012.

The 10-year U.S. Treasury rate increased 1.26% closing the year out at 3.04% compared to 2012s year-end at 1.78%.

Fannie Mae and Freddie Mac followed up their record year in 2012 of approximately $62 billion in loans with a combined total of approximately $57 billion. This was in line with their 2013 projections.

CMBS was the biggest change among the commercial real estate lenders, providing additional liquidity to the capital markets. CMBS volume in 2013 was $86.1 bil-lion, a 78.00% increase over the previous year and al-most three times that of 2011s volume. CMBS was also competitive at higher leverage deals.

Life companies continued to win longer term, fully am-ortizing deals from agencies and continued providing forward commitments on multifamily construction loans prior to stabilization. Life companies were primarily fo-cused on 65.00% to 70.00% LTV business.

Banks won a larger share of business with low leverage (>60.00% LTV), non-recourse floaters on shorter term loans, providing borrowers with overall lower interest rates.

While lenders were more amendable to higher LTV loans in 2013, average LTV ratios hovered around 65.00%, significantly below the 70.00%-plus levels seen in 2005 and 2007. Looking forward, however, le-verage is anticipated to go up in 2014.

2014 OUTLOOK Leverage alternatives will be readily available through-

out the capital stack, plenty of liquidity.

Global economic indicators will continue to improve. As the Treasury and Federal Reserve continue their ta-per, this will remove artificial demand, increasing yields on U.S. Treasuries and putting upward pressure on in-terest rates.

Investors continue their move to floating rates for short-er term loans in order to take advantage of lower inter-est rates at the shorter end of the yield curve.

Underwriting standards will remain relatively firm.

With agencies having now repaid the Federal Govern-ment and returning to profitability, they will focus on traditional fundamental underwriting, verses loan vol-ume origination targets or reductions.

Select life companies will return to more traditional LTV rates of 75.00%, while still chasing risk adjusted yield.

The CMBS volume will continue to increase as the demand for AAA and B piece bonds continues to be strong and the rating agencies are consistent with their underwriting of portfolios. CMBS volume in 2013 was $85 billion, up from $35 billion in 2012 and likely to surpass $100 billion in 2014.

* Source: Commercial Mortgage Alert

Annual CMBS Issuance in the United States

250

225

200

175

150

125

100

75

50

25

0

2000

2007

2005

2012

2006

2013

2004

2011

2003

2010

2002

2009

2001

2008

46

.93

22

8.5

5

67

.31

12

.15

77

.85

11

.63

16

6.5

48

.37

19

8.3

8

86

.1

92

.59

32

.71

52

.10

2.7

4

Dol

lars

in B

illio

ns

2013 Trend

2014 Forecast

Market Volatility

Lender Regulation

Distressed Properties

LTV Ratios

CMBS Lending

Construction Loans

Mortgage Rates


2014, CBRE, Inc.


INDUSTRIAL Written By: Bryan Van Hoof, Senior Vice President Katy Mulcahy, Associate

2013 REVIEW The Minneapolis/St. Paul industrial market continued

its strong performance in 2013. In virtually all catego-ries we saw positive improvements with net absorption ending the year at 2,600,129 square feet. This marks the 14th consecutive quarter with positive net absorp-tion.

Vacancy rates continued to decrease in the local mar-ket. This was primarily due to occupier demand for quality space. Tenants looking for larger spaces, such as 75,000 square feet and above, have very few Class A options.

Asking rates increased from a recent average of $4.50 per square foot (for all product types) at the beginning of the year to $4.73 at the end of the year.

The industrial investment sale market remained robust throughout 2013. The continued interest by institution-al investors for quality and stable product made pricing very competitive as cap rates compressed to all-time lows. As cap rates on core assets decreased, industrial investors were motivated to consider alternative prop-erty types within the industrial sector.

Occupier building values have continued to increase.

New construction was very active throughout the year. By year-end, there were 16 industrial properties under con-struction in the Twin Cities market totaling 2.24 million square feet.

Speculative development continued to be a hot topic. There were three speculative development projects com-pleted by year-end totaling 567,800 square feet. These projects are nearly 100% occupied.

Activity from the development community was fierce in 2013. National players such as Scannell and McShane joined the local standbys of Ryan, Opus, CSM and United Properties.

2014 OUTLOOK The Minneapolis/St. Paul industrial market continues to

be one of the strongest commercial real estate sectors in the region. The local market surpassed the one mil-lion square feet mark of positive net absorption in the fourth quarter of 2013.

The year started out with a flurry of build-to-suit activity and will continue through the first half of year. Ruan Lo-gistics agreed to terms on over 299,000 square feet of new construction. Liberty Property Trust landed a 232,000 square foot tenant in their latest speculative project.

Speculative developments will continue in early 2014 due to the lack of Class A industrial product that tenants in the marketplace currently demand. In the first quar-ter alone, there are two projects scheduled to break ground totaling 798,000 square foot.

Average asking rates are anticipated to rise as the market continues to favor the landlord, specifically new construction.

Overall, the 2014 industrial market will continue to build on the positive momentum created in 2013.


Absorption

Vacancy

Quoted Rate

Concessions



Location Type Size

US Foods Eagan Sale 337,000 SF

Superior Logistics Minneapolis Sale 350,359 SF

ProtoLabs Plymouth Sale 175,000 SF


* Source: CBRE. Inc. and Marquette Advisors

Minneapolis/St. Paul Market Statistics

4

3

2

1

0

(1)

(2)

(3)

9.00

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.0020072005 20122006 2013

2.6

5.2%

2004 2011201020092008

VacancyAbsorption

SF in

Mill

ions Va

canc

y %

2014, CBRE, Inc.


RETAILWritten By: Matt Friday, Senior Vice President David Daly, Vice President Eric Sheaffer, Client Services Specialist

2013 REVIEW Class A retail sites able to accommodate 10,000 to

15,000 square feet by way of redevelopment were highly sought after by investors. These sites are gener-ally fully leased at groundbreaking, well before they hit the market.

Small strip center and urban infill projects were the most sought after spaces for retailers.

Additionally, quick service restaurants (QSR) have re-mained very active (burger, yogurt, Asian and chicken).

Junior to mid-box vacancies (10,000 to 30,000 square feet) were leased quickly as stronger retailers took ad-vantage of others giving back space in strong trade ar-eas.

Well positioned retail within mixed-use projects saw suc-cess with grocery chains, restaurants and service retail.

A noteworthy mixed-use project completed in 2013 is Ryan Companys Whole Foods development in Minne-apolis at 222 Hennepin.

Minneapolis/St. Paul was one of the most active retail markets in terms of new construction. Most notably, Paragon Outlets in Eagan, The Promenade of Wayzata, Shingle Creek Crossings and Cabelas Woodbury.

A combination of new multifamily and student housing mixed-use projects were catalysts for new retail space delivered.

Large tenants who left their occupied space included Macys at 411 Cedar in St. Paul, Neiman Marcus at 505 Nicollet Mall in Minneapolis and Rainbow Foods at Rockford Road Plaza.

2014 OUTLOOK As realized in 2013, prime retail space in quality cen-

ters remains scarce, causing rates to continue to in-crease in 2014.

We will see continued activity in the grocery sector as Aldi, Fresh Thyme, Lunds/Byerlys and Whole Foods continue expansion efforts.

Pizza will become active in QSR.

Medical tenants, most significantly dental, will continue to absorb space.

Despite stagnant growth in outer suburban markets, retailers well-positioned both financially and competi-tively could start exploring third tier markets for sites to accomodate their future growth.

Retailers seeking expansion will keep a close eye on the Office Max/Office Depot consolidation.

Rainbow Foods, Barnes & Noble and JCPenney space could come available as they refine their business mod-els.

Neighborhood centers in second and third tier suburbs should not expect to see an increase in activity.

Regional malls that have not developed a strategy to rebrand or create a new customer experience, mainly with entertainment options, could continue to struggle.

Landlords will pay close attention to creating a sustain-able tenant-mix by adding service retail and medical in lieu of apparel which has been very competitive.


Absorption

Vacancy

Quoted Rate

Construction


Significant Transactions Tenant Size

Ridgedale Center Nordstroms 138,000 SF

Shingle Creek Crossings LA Fitness 45,000 SF

Rockford Road Plaza Kohls 65,000 SF

9895 Hudson Place Hobby Lobby 49,000 SF

Southdale 494 Center Marshalls 26,100 SF

Southdale 494 Center Total Wine & More 17,300 SF


2014, CBRE, Inc.


LAND Written By: Richard Palmiter, Vice PresidentBrian Pankratz, Vice President

2013 REVIEW Retail started its come back with the Paragon Outlets

in Eagan which began construction in May 2013 with an expected completion and opening in August 2014. This more than 400,000-square-foot shopping center was the largest to start construction, but Whole Foods, Trader Joes, Walmart and other service retailers also opened new locations in 2013.

Apartments continued to be the leader in new con-struction focused mainly on the Minneapolis/St. Paul urban areas. The prime locations included University of Minnesota campus, North Loop, downtown St. Paul, Uptown and the Hwy 394/Hwy 100 Corridor. The 222 Hennepin opened, creating the first new mixed-use de-velopment anchored by Whole Foods and a 275-apart-ment building.

Single-family for sale housing took off in the first nine months of 2013 while interest rates remained low. National homebuilders continued to lead the charge in prime locations including Wayzata School District, Maple Grove, Blaine, Lakeville, Woodbury and Otsego. A few new townhome projects were started that were haulted during the slowdown.

Industrial development made an exciting comeback in 2013. New industrial spec developments started in lo-cations with good interstate access, pro-business cities and strong labor pools. Cities that saw development, either build-to-suit or spec, included Rogers, Brooklyn Park, Chanhassen, Roseville, Maple Grove and Dayton.

With the return of residential development, we saw an increased interest in speculative land purchases by investors. As the unknown Farming Bill still lingers in Congress, farm land prices seemed to have topped out for the moment but could change in 2014.

2014 OUTLOOK Retail construction will continue its comeback. The mar-

ket will see the spillover effects from just being urban development into some second or third ring suburbs.

The industrial market will continue to see additional speculative development and build-to-suit projects. If the Minnesota Warehousing Tax does not get repealed, we could see a slow down new development in Min-nesota to more favorable tax states such as Wisconsin.

With the near completion of the large Target and Unit-ed Health Group projects, there will be little new office space built in the metro besides medical office projects.

The Twin Cities could see two new master planned proj-ects come to the market in Arden Hills and Rosemount - both former ammunition sites used during World War II.

The housing market will remain strong in sales and rentals. New apartment projects will continue to pop up near transit centers. As land prices escalate, for sale housing will continue to push into new suburbs and townhome projects will see increased demand.

2014, CBRE, Inc.


Written By: Sandy Barin, Senior Associate

2013 REVIEW Outstate pricing for vacant buildings trended upward

with the rise in new construction pricing.

Outstate cap rates compressed even further from dou-ble digits over the last five years.

Outstate leasing activity increased in 2013 with rents holding steady.

Rising construction costs kept rents higher than the pre-vious five year rental history.

Labor savings helped to drive tertiary market consid-eration.

Minnesota Warehouse Tax caused warehousing com-panies to consider border towns in neighboring states.

2014 OUTLOOK Corporations continue to right size and readdress their

location, size and layout strategies devised prior to 2008.

The Bakken Oil Range continues to report an extremely high demand for industrial land and buildings. Pricing for land and construction is four times that of a typical development in the area.

Currently, there are more buyers than sellers for indus-trial real estate, which will drive investors to non-core markets.

The lack of metro land sites will continue driving land sales for build-to-suits in the outstate.

State tax programs can entice companies to look to border cities like Hudson, Lacrosse, Mason City and Sioux Falls.

TERTIARYMARKETS


Total Building SF

Transaction Location

MPC (CBRE) 270,000 SF Expansion Janesville, WI

Colony Brands (Binswanger) 400,000 SF Lease Sun Prairie, WI

Stag (CBRE) 700,000 SF Sale Janesville, WI

Chart (CBRE) 110,000 SF New Construction New Prague, MN

Chart (CBRE) 150,000 SF Extension Owatanna, MN


Major Plant Closures (5 State)

Total Building

Transaction Location

MonDak Corner Transload Facility (CBRE)

400 Acres New Development

Bakken Oil Range,

ND

Caterpillar Closure (CBRE) 170,000 SF

Vacant Building Sale

Owatonna, MN

Pactiv Closure (CBRE) 237,000 SF

Vacant Building Sale

Chippewa Falls, WI

Suzdon (CBRE) 215,000 SF Vacant Building SalePipestan,

MN

US Foods (CBRE) 89,400 SF Vacant Building SaleFairmont,

MN


2014, CBRE, Inc.


Written By: Dan Curry, Associate

2013 REVIEW

MINNESOTA MARKET The Minneapolis/St. Paul market is experiencing a

supply correction as operators and developers from around the country have committed to bring specula-tive capacity to the market. Server ready concurrently maintainable colo capacity is set to grow from 1.4 MW to 6.5 MW in 2014.

Demand growth from end-users is roughly inline with capacity growth as provider activity and headlines read by the C-Suite brought more attention to the quality of the end-users environments.

The Southwest and Southeast suburbs gained the most traction as the prime data center locations in town.

Rates available to users with needs of 100 kW and greater were cut by roughly 35.00%, as new provid-ers leveraged different value propositions to provide a lower cost for space, power and cooling.

INDUSTRY TRENDS Large wholesale data center deals expanded beyond

traditional markets into secondary markets around the country.

The average cost of unplanned data center outages in-creased to $7,900 per minute, up 41.00% from $5,600 per minute in 2010*.

The enterprise workforce demanded higher quality IT solutions through bring your own device and cloud computing solutions. Challenges with security slowed enterprises from adopting these technologies.

2014 OUTLOOK

MINNESOTA MARKET Colocation pricing will bottom out in 2014 as the new

providers work to land initial tenants in speculative projects.

Competition and lower pricing among network provid-ers due to the new market structure will make Minne-sota a more competitive market nationally.

Activity from end-users will increase as boards learn of the growing trend to upgrade data centers.

Providers looking to expand in town will have a wide range of environments recently vacated and built by enterprises.

The tax abatement program enacted by the state will support the move to colocation as users find they will only qualify for the program by occupying these facili-ties.

INDUSTRY TRENDS Data center investments will grow as more United States

companies will be required to store data in countries where the data is consumed due to new regulations stemming from the NSA backlash.

End-users will increasingly look to host cloud comput-ing requirements in the same facility as their data cen-ter requirement.

The leaders in cloud computing will decide to fund their own telecom networks to improve security. This will put downward pressure on the cost of bandwidth.


Absorption

Vacancy

Quoted Rate

Construction


DATA CENTERSOLUTIONS GROUP

* Source: Ponemon Institute** Source: Contractor websites, news reports, aerials; Full building conversions and purpose built facilities only.

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

00

Squa

re F

eet

(SF)

Minneapolis/St. Paul Data Center Development (SF)**

2007 2012 20132011201020092008

2014, CBRE, Inc.


Written By: Chris Jacobson, AssociateSusan Wilson, Associate

2013 REVIEW Containing costs and creating efficiencies were the driv-

ing trends across the healthcare industry in 2013. Hos-pitals were reconfiguring space to reduce the number of steps physicians and nurses take in getting around. Building design focused on energy efficiency with up-graded infrastructure and new technology.

Medical office building sales remained strong in 2013, which were projected to hit $2 billion for the second year in a row by year-end.

Sanford Health continued to expand into Minnesota by opening a $9 million center in Bemidji in 2013.

Major healthcare mergers continued through 2013. Most notably, Franklin, Tennessee-based Community Health Systems and Naples, Florida-based Health Management Associates. CHS announced it will ac-quire Health Management in a deal valued at $7.6 bil-lion expected to close in the first quarter of 2014.

In CBRE news, the company enhanced our healthcare platform with the acquisition of KLMK, Group, a lead-ing healthcare consulting and project advisory firm.

2014 OUTLOOK The retail-ization of healthcare delivery will continue

its recent growth pattern as patients seek easy access in retail environments. Providers will look for locations closer to patient residence with high visibility and easy access. We approach the retail environments with care, as we know not all good retail makes for a good medi-cal clinic.

We expect to see a continued change with the demands set on providers to be bigger, better and cheaper. Hos-pitals and physician groups will seek mergers and ac-quisitions to increase quality and reduce cost.

Investors have an increasing interest in healthcare real estate as we approach the wave of baby-boomers en-tering their senior years with the increased average lifespan. We refer to this phenomenon as the silver tsu-nami. This, along with 30 to 40 million newly insured that are expected to enter the healthcare delivery sys-tem in the coming years, keeps the interest top of mind.

Transition from reimbursement for procedures to reim-bursement for patient outcomes will continue to drive physicians to seek the space and efficiency of larger physician groups and systems. This will create demand for collaborative, technological, staff friendly and pa-tient experience driven facilities.

Cost containment strategies and lower reimbursements will force providers to seek the continued monetization of assets so capital can be made available for equip-ment, staff and delivery related investment.

Cost containment also means creating efficiencies and delivering lower cost procedures to an expanding range of patients. Providers will need to move higher acuity uses from hospitals to medical office buildings which in turn will require more sophisticated design and care-ful attention to provider tenant mix than the traditional medical office buildings.

Advances in medical knowledge will lead to new treat-ments. Medical spaces will require flexibility to ensure existing space can be adjusted to keep up with new treatment needs. Lack of flexibility will shorten the life of a facility as changes in equipment and delivery meth-ods improve. Owners of medical real estate will need to be keenly aware of advances in medicine and how such advances affect their provider tenants.

HEALTHCARE

2013 Trend

2014 Forecast

Regulatory Control

Hospital - Physician Integration

Independent Physician Practices

Formation of New Delivery Models, i.e. Payer - Provider Mergers


2014, CBRE, Inc.


Written By: Mike Moynagh, MAI

2013 REVIEW

OFFICE The office market exhibited positive absorption in the

first half of 2013, but absorption leveled off in the sec-ond half of the year.

Rental rates increased throughout the year.

New construction was primarily limited to build-to-suit projects.

INDUSTRIAL The Minneapolis/St. Paul industrial market showed rel-

atively strong fundamentals throughout 2013.

Leasing and sales activity in the office warehouse sector was stronger than the bulk warehouse and office show-room property types. There was continued interest by institutional investors for quality and stable investment grade product with cap rates being compressed to all time lows.

Speculative development began following an overall return of market fundamentals including new construc-tion in the most desirable areas of the Twin Cities.

Asking rental rates increased slightly for office ware-house product.

RETAIL The Twin Cities area retail market witnessed positive net

absorption in 2013, and retained one of the largest amounts of new retail space under construction.

The new construction was driven by the continued solid performance of retail real estate investments and the continued overall economic growth within the Twin Cit-ies market.

Investor interests increased with the rise in rental rates and decrease in vacancy rates. Based upon our obser-vation, overall cap rates for properties with long-term net lease credit tenants decreased in 2013 from the year-end of 2012.

MULTI-HOUSING Overall, 2013 proved to be another successful year for

a majority of Twin Cities apartment owners.

Apartment cap rates remained low despite the increas-es to lending rates.

Effective rent growth was again positive coming off a strong 2012, reportedly around 3.00%, give or take.

Absorption was positive for the year, although the last quarter of 2013 witnessed a slight slow down. This was on a per property level due to supply increases coupled with the seasonality of the Minnesota rental market.

2013 again finished strong in occupancy with a major-ity of submarkets (if not all) continuing to operate at a level above stabilized. The overall supply increased sig-nificantly in select submarkets, which resulted in lease-up concession offerings at select properties in the fourth quarter of 2013.

HOTEL Hotel operating performance in 2013 generally con-

tinued the positive performance growth that started in 2012. This market improvement along with the increase in availability of hotel mortgage financing, resulted in more hotel property sales than in 2012.

Property owners and buyers also continued investing in franchisor required property improvement plans (PIP) and renovations to upgrade their facilities in order to compete in their respective markets.

One of the notable hotel sales of 2013 was the sale by the Carlson Real Estate Company of the Radisson Pla-za Hotel in the Minneapolis CBD to Chartres Lodging Group. The hotel is currently undergoing an extensive renovation that is scheduled for completion in 2014. Upon completion, the hotel is to be rebranded as an upper-upscale Radisson Blu. It reportedly will be only the fifth Radisson Blu in the Americas.

VALUATION AND ADVISORYSERVICES

2014, CBRE, Inc.


2014 OUTLOOK

OFFICE The office market will exhibit moderate improvement

in 2014.

Absorption will be positive despite tenants seeking to improve efficiencies in regards to workspace designs.

Vacancy will continue to decline. The premium space in the market is currently in high demand which will push the top of market rents higher.

INDUSTRIAL Growth in the industrial market is anticipated to be

steady and is expected to follow the general strength-ening of the economy.

Longer lease terms are anticipated. We expect to see an increase of deals extending between seven and 10 years in comparison to the three and four year leases that have been typical in previous years.

Some concern is noted related to the recently passed tax by the Minnesota State Legislature. This could result in significant increases in operating costs to distributors.

Improvement is expected in the manufacturing sector statewide. Market demand for quality bulk warehouse product with 28 and higher clear height is expected to continue. Tenants will continue to have leverage but less so for higher quality investment grade product.

RETAIL Based on the strong performance for the retail market

in 2013, market growth is expected to continue into 2014 within the Twin Cities retail market.

Job growth and an increase in consumer confidence will play a large role in the retail industry.

Investors, we believe, remain somewhat cautious for in-vestment grade retail properties and what happens to interest rates.

MULTI-HOUSING In the multifamily market, cap rates are expected to

remain low through 2014, assuming no interest rate spikes. Effective rent growth is expected to be positive falling between 1.00% to 2.00%. This is still less than previous years as new construction completions begin to impact occupancy and concessions appear in select submarkets.

Occupancy rates will remain high, but will continue to decline through 2014 to a more stabilized level. This will be a result of construction completions and a con-tinued improvement in the residential for sale market.

Urban areas of Minneapolis will likely witness some short-term vacancy pains in its new construction, Class A product, resulting in concession offerings and slower than anticipated absorption. The overall supply will witness significant increases for the next couple years. Only time will tell how these supply increases will im-pact occupancy, absorption and rental rates.

Although a majority of the looming market-rate sup-ply increases are of Class A and A/B properties within urban core and first ring submarkets, there will likely be a slight downward vacancy trickle-down effect to the older urban and suburban properties. Tenants will take advantage of any short-term concession offerings in new construction developments.

HOTELS The ongoing improvement in the lodging market has

also resulted in some new hotel development with a number of proposed hotels that could break ground in 2014.

We expect that in 2014, the Twin Cities lodging market will continue with the positive performance improve-ment of the last two years and expect an average to good lodging investment demand for most property types if they become available.

VALUATION AND ADVISORYSERVICES Written By: Mike Moynagh, MAI

2014, CBRE, Inc.


ASSET SERVICESOur Asset Services group transforms assets into opportunities through customized, value-added solutions that deliver mea-surable results in property management, leasing, tenant rela-tions, project and construction management, technical servic-es, sustainable business practices, risk management, business continuity planning, purchasing and financial reporting.

BROKERAGE SERVICESCBRE provides a complete spectrum of commercial real estate brokerage services for tenants/occupiers, property owners and narrowly focused vertical industries in the office, industrial and retail sectors.

CAPITAL MARKETSOur Capital Markets group integrates the companys invest-ment sales and debt and structured finance businesses into a single, complementary global service offering. CBRE is the worldwide leader in the acquisition and disposition of income-producing properties for third-party owners, and our mortgage banking group is a leader in debt and structured finance for all property types.

DEVELOPMENT & INVESTMENT SERVICESOur wholly-owned, independently operated subsidiary, Tram-mell Crow Company, services users of and investors in, office, industrial, retail, healthcare, student housing, on-airport dis-tribution, multifamily residential and mixed-use projects. For users of real estate, the firm offers build-to-suit and redevelop-ment opportunities.

FACILITIES MANAGEMENTManaging corporate, institutional, not-for-profit and govern-ment space users around the world, the Facilities Management group delivers the highest level of customer service and value, enabling clients to focus on their core business. By partnering with our clients, our approach to facilities management goes well beyond traditional service models.

FINANCIAL CONSULTINGFinancial Consulting Group (FCG) professionals are special-ists who provide sophisticated financial and analytical consul-tation to facilitate informed decision making. We apply finan-cial and analytical thinking to decision-making with regard to sale, lease, investment and other real estate transactions. De-mand for such an approach extends the continuum of required services beyond basic analysis to in-depth financial interpreta-tion and value-added consulting, which includes a credible rationale to support the real estate decision process.

GLOBAL CLIENT STRATEGIES|CONSULTINGOur Global Client Strategies organization drives superior business performance for our clients by maximizing value from their real estate assets and management practices. The group delivers consulting solutions that combine business intelligence with organizational strategies, portfolio optimization, expense management strategies and labor analysis.

GLOBAL CORPORATE SERVICESOur Global Corporate Services group delivers customized, in-novative workplace solutions in multiple markets worldwide. Strategically positioned to answer the real estate needs of our corporate, healthcare, government and institutional clients, the group combines expertise in portfolio management, trans-action services and facilities and project management.

HEALTHCARE SERVICESOur Healthcare group professionals provide a comprehen-sive range of real estate and facilities management services to healthcare providers. Our specialized staff focuses on hospital and medical office development, clinical facilities manage-ment (inclusive of energy management), medical office build-ing leasing and management, brokerage services and moneti-zation of non-core real estate assets.

INVESTMENT MANAGEMENTCBRE Investors is a wholly-owned, but independently oper-ated, real estate investment management firm. Investment funds and programs are diversified by strategy, region and/or relative risk/return, and are executed by dedicated investment management teams focused on a specific geography and style of investing.

INDUSTRIAL SERVICESThe Industrial Services group addresses the needs of owners and occupiers at every stage of the supply chain, with a spe-cial emphasis on ports, intermodals and air cargo. These pro-fessionals also work closely with research and development, manufacturing, assembly warehouse and distribution, as well as land acquisition and disposition.

LANDLand Services is a network of experienced commercial property professionals focusing exclusively on real estate land transac-tions. Our mission is to accelerate our clients success through superior market knowledge, industry-leading technology, a team approach, collaboration among lines of business, shar-ing of best practices and a global real estate perspective.

CBRE MINNEAPOLIS/ST. PAULSERVICE LINES

2014, CBRE, Inc.


PROJECT MANAGEMENTAs one of the worlds largest providers of professional real estate project management services, we offer a full menu of solutions to address challenges that real estate occupiers and investors face globally. Our solutions include project manage-ment, outsourcing strategies, program management services, interior build-outs, moves/adds/changes, capital improve-ments and building renovations and tenant improvements.

OFFICE SERVICESOffice Services represents the largest segment of CBREs transaction activity. We have more professionals specializing in the office sector than any other firm. CBRE professionals, unsurpassed in their local market knowledge, are supported by leading econometric forecasting and proprietary market re-search tools, to ensure our clients make strategic and informed decisions.

RESEARCH & INVESTMENT STRATEGYWe provide commercial real estate forecasting and invest-ment strategy services. These services cover markets around the globe in all quadrants of the real estate market, including public, private and debt and structured finance. We provide unrivaled, insightful analysis and opinions, based on a highly academic approach and access to the largest database of deal specific information.

RETAIL SERVICESRetail Services offers solutions to the unique needs of retailers and retail property owners, buyers and sellers. Our expertise includes both urban and suburban real estate and all types of retail centers. Our integrated real estate services include strategic planning, retailer site acquisition, disposition, invest-ment sales, leasing, finance, asset services and mall and urban expertise.

VALUATION & ADVISORY SERVICESThe Valuation and Advisory Services group provides indepen-dent, accurate, reliable and timely valuations critical to the success of every real estate transaction or financing. This is accomplished through the accumulation and dissemination of comprehensive data on commercial real estate throughout the world.

CBRE MINNEAPOLIS/ST. PAULSERVICE LINES

2014, CBRE, Inc.

DISCLAIMERInformation contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist.

CONTRIBUTORSIN ALPHABETICAL ORDER

LOCAL LEADERSHIP

Blake HastingsManaging Director, Brokeraget: +1 952 924 4638e: [email protected]

Matt NicollManaging Director, Asset Servicest: +1 952 924 4690e: [email protected]

Sharon WalshSenior Office Operations Managert: +1 952 924 4610e: [email protected]

CONTRIBUTORS (IN ALPHABETICAL ORDER)

Ted AbramsonSenior Associatet: +1 952 924 4881e: [email protected]

Keith CollinsSenior Vice Presidentt: +1 952 924 4654e: [email protected]

Chris JacobsonAssociatet: +1 612 336 4314e: [email protected]

Joel TorborgVice Presidentt: +1 612 336 4210e: [email protected]

Abe AppertSenior Vice Presidentt: +1 952 278 2198e: [email protected]

Dan CurryAssociatet: +1 952 924 4869e: [email protected]

Jim LearySenior Vice Presidentt: +1 952 924 4601e: [email protected]

Bryan Van HoofSenior Vice Presidentt: +1 952 924 4624e: [email protected]

Sandy BarinSenior Associatet: +1 952 924 4816e: [email protected]

David DalyVice Presidentt: +1 612 336 4319e: [email protected]

Mark McCarySenior Vice Presidentt: +1 612 336 4317e: [email protected]

Brian WassermanFirst Vice Presidentt: +1 952 924 4681e: [email protected]

Ben BastianProduction Analystt: +1 612 336 4233e: [email protected]

Jerry DriessenVice Presidentt: +1 612 336 4310e: [email protected]

Mike Moynagh, MAIManaging Directort: +1 612 336 4239e: [email protected]

Ryan WattsFirst Vice Presidentt: +1 952 924 4657e: [email protected]

Jeff BudishAssociatet: +1 952 924 4842e: [email protected]

Matt FridayFirst Vice Presidentt: +1 612 336 4209e: [email protected]

Katy MulcahyAssociatet: +1 952 924 4872e: [email protected]

Erin WendorfSenior Associatet: +1 612 336 4308e: [email protected]

Steven BussExecutive Vice Presidentt: +1 952 924 4618e: [email protected]

Laura HannemanClient Services Specialistt: +1 952 924 4611e: [email protected]

Richard Palmiter Vice Presidentt: +1 952 924 4600e: [email protected]

Susan WilsonAssociatet: +1 952 924 4840e: [email protected]

Charles CaturiaSenior Vice Presidentt: +1 952 924 4628e: [email protected]

Brian HelmkenFirst Vice Presidentt: +1 952 924 4659e: [email protected]

Brian PankratzVice Presidentt: +1 952 924 4665e: [email protected]

Reed ChristiansonFirst Vice Presidentt: +1 612 336 4268e: [email protected]

Joe HughesSenior Associatet: +1 612 336 4293e: [email protected]

Eric SheafferClient Services Specialistt: +1 612 336 4251e: [email protected]

MINNEAPOLIS/ST. PAULMARKET OUTLOOK 2014

Documents

MSP Market Outlook 2014[2]