National retailers dominate local retail market; occupancy costs continue to rise

Research & Forecast Report

MINNEAPOLIS-ST. PAUL | RETAILQ1 2016

Vacancy and absorption trends After a record-breaking level of absorption during 2015, the Minneapolis-St. Paul retail market continues to show strength and strong demand. Over 1.1 million square feet of retail space was absorbed during 2015, the most absorption we have recorded in this market for more than 10 years. Vacancy as of the first quarter of 2016 is 4.4 percent, flat since year-end. There was 35,235 square feet of absorption, a slowing since Quarter Four. We expect absorption to pick up through the end of the year. There is 1.3 million square feet of space under construction, including four Hy-Vee stores, a Fresh Thyme Farmers Market, and a Whole Foods store.

Net Absorption1,000,000

500,000

0

(500,000)

(1,000,000)

(335,329)

(962,017)

508,759

(143,478)SF A

bsor

bed

632,849431,134

872,912 1,111,241

2008 2009 2010 2011 2012 2013 2014 2015

(246,509)

2007

35,235

2016Q1

Vacancy

10%

8%

6%

4%

2%

0

5.1%

6.9% 7.3% 6.8%

Perc

ent V

acan

t

6.2%

5.4%4.9%

2008 2009 2010 2011 2012 2013 2014 2015

4.4%

2007

3.6%

2016Q1

4.4%

Market IndicatorsRelative to prior period Q1 2016 VACANCY NET ABSORPTION RENTAL RATE

2 Minneapolis-St. Paul Research & Forecast Report | Quarter 1 | Retail | Colliers International

Market Trends

• The highest demand exists for spaces in the 2,000 to 3,000 square-foot range and competition is strong.

• Due to the attractive demographics and incomes in the region, national tenants have pushed to expand in the Twin Cities. Locally-based retailers have slowly been pushed out and we are seeing a significant reduction in locally-owned retailers opening. The exception is in high-end spa and skin clinics and a few high-end chef-driven food concepts.

• Rental rates at new construction are at all-time highs for our area, particularly at prime urban locations near vibrant trade areas. Increasing construction costs are also contributing to the upswing in rental rates.

• Fast-casual restaurants continue to increase their presence. Punch Pizza, Freshii, Café Zupas, Pancheros Mexican Grill and Mod Market are all currently either expanding or looking for locations in this area. These national players are willing to pay some of the higher rents we are seeing in the market.

• We are seeing a trend of tenants in existing spaces entering into negotiations to reduce their rental rate before the renewal timing stipulated in their lease terms.

• A recent article on Forbes.com reported that Sports Authority will be closing all of its stores as it notified bankruptcy court that it would not be able to reorganize after filing for Chapter 11 in March. There are 10 Minnesota Sports Authority stores, including a store in the Minneapolis CBD, which recently opened during the fourth quarter of 2015.

• Hancock Fabrics is closing all of its 185 stores nationwide, including 10 in Minnesota, six of which are in the Twin Cities area. When the company initially filed for bankruptcy in February, the announcement was to close 70 stores nationwide, including local stores in Bloomington, Woodbury, and Roseville.

• Occupancy costs are also being pushed up by high tax rates. Some assets have changed hands at high prices, leading to properties being reassessed at higher values, pushing up the amount of tax landlords pass on to tenants.

• Future challenges for retailers will continue to be the tight labor market. Finding, training and retaining good employees present significant challenges in running retail businesses.

• In addition, we expect increasing rental rates, CAM and tax costs to put a damper on increasing rental rates.

Tenant TrackerExpanding

New or Looking

3Minneapolis-St. Paul Research & Forecast Report | Quarter 1 | Retail | Colliers International

Retail Spotlight: The Fitness (club) Craze Healthy lifestyles have always been in vogue, but in recent years, the types of exercise and workouts people are pursuing have evolved significantly. This has led to different types of fitness centers that are designed to cater to the public’s desire for fitness, community, and status.

While large format centers such as Lifetime and LA Fitness still perform well, there are many more boutique-type fitness centers showing up around the Twin Cities. From studios such as Corepower Yoga, PureBarre, and Club Pilates, to specialty centers like OrangeTheory Fitness and Soul Cycle, the Twin Cities health-conscious population has their choice of where to work out.

“Many of these fitness centers offer a pay-per-class option as opposed to the typical monthly subscription of larger fitness centers,” explains Ian Halker, Senior Associate with the retail group at Colliers International | Minneapolis-St. Paul. “People who attend these studios or centers are willing to pay premium prices for a sense of community that might not be found in other fitness centers. Some people will make an afternoon of going to a place like PureBarre in Edina, and getting a glass of wine after class with friends.”

Others view these places as a status symbol, with brand recognition to go along with them. “Just like people who have the 26.2 stickers on their car to be identified as marathon runners, some people will place a CPY sticker on their car to be associated with Corepower Yoga,” adds Halker.

Other Fitness Alternatives In addition to the high-end boutique fitness centers, many regional trade areas are seeing an upswing in smaller, more cost-effective alternatives such as Snap Fitness, Crunch Fitness, and Planet Fitness. “These can provide members with the equipment they need, without the bigger price tags of a boutique fitness center.

Other options include places such as Title Boxing and 9 Rounds, which cater to a niche fitness style, but remain in the middle with regard to price.

The Options are Endless Whether a person wants a large-format fitness center to provide them with various types of workouts, or prefers a smaller, niche-concept center to focus on a certain type of fitness, there is no dearth of options in the Twin Cities market. And, as long as it keeps the Twin Cities population healthier, these fitness centers should be here to stay.

Spotlight Trends

Ian HalkerSenior Associate | Retail LeasingDIRECT +1 952 374 5810ian.halker@colliers.com

Data Summary

TRADE AREA SF VACANT %VACANT 2015 ABSORPTION Q1 2016ABSORPTION

Ridgedale (Minnetonka) 2,099,343 2,858 0.1% (1,589) 41,646

Eagan Town Center 1,293,574 10,095 0.8% 11,856 (6,618)

Eden Prairie 2,425,004 25,151 1.0% 3,919 4,422

Southdale (Edina) 5,256,356 103,264 2.0% 36,632 7,496

Burnsville 3,020,067 63,286 2.1% 14,502 1,100

Arbor Lakes (Maple Grove) 5,005,806 111,758 2.2% (5,773) 8,644

Rosedale (Roseville) 3,264,718 92,363 2.8% (69,605) (10,638)

Woodbury 3,254,915 93,294 2.9% 33,820 1,044

Apple Valley 2,054,496 78,926 3.8% (20,782) 5,456

South Robert (St. Paul) 2,100,642 93,529 4.5% 67,656 7,146

Maplewood 1,875,383 95,600 5.1% 90,427 (23,686)

Northtown (Blaine) 2,122,701 112,513 5.3% 58,545 1,500

Total 33,773,005 882,637 2.6% 219,608 37,512

Ridgedale recently completed a renovation and expansion that included a new Nordstrom store and additional shops including Lush, Banana Republic, Redstone Grill and Brooks Brothers.

The Mall of America announced that fast-fashion retailer Zara will open a 30,000-square-foot store in the newly-opened north wing. Anthropogie is also planning a 10,000-square-foot store in this new expansion area.

Ridgedale Mall

4 Minneapolis-St. Paul Research & Forecast Report | Quarter 1 | Retail | Colliers International

Minneapolis-St. Paul Retail Trade Areas

Von Maur confirmed it will be opening at Rosedale Center. The upscale retailer will open a 140,000-square-foot department store, which will be the Iowa-based chain’s second location in Minnesota (the other location is at Eden Prairie Center.)

Rosedale Center

Mall of America

5Minneapolis-St. Paul Research & Forecast Report | Quarter 1 | Retail | Colliers International

Lease Activity

TENANT PROPERTY ADDRESS CITY SF SUBMARKET

Robbinsdale Schools Crystal Shopping Center 301-355 Willow Bend Crystal 42,000 Northwest

PGA Tour Ridgeview Plaza 12216-12380 Wayzata Blvd Minnetonka 41,646 West

Fresh Thyme Vadnais Square Shopping Center 905-955 County Road E E Vadnais

Heights 28,800 Northeast

Target Lake & Fremont 1300 W Lake St Minneapolis 21,410 West

Dollar Tree Crystal Shopping Center 99-145 Willow Bend Crystal 9,851 Northwest

Pet Supplies Plus Vadnais Square Shopping Center 905-955 County Road E E Vadnais

Heights 9,001 Northeast

Diamond Daycare Inc Lexington Shoppes 458 Lexington Pkwy Saint Paul 6,516 Northeast

McKinney Roe Wells Fargo Tower 600 4th St S Minneapolis 6,000 Mpls CBD

Salon Concepts Country Village Shopping Center 11301-11400 Highway 7 Minnetonka 6,000 West

Mattress Galaxy Midtown Shopping Center 1100-1214 Vermillion St Hastings 5,834 Southeast

Dana's Apparel Normandale Village 5101 W 98th St Bloomington 5,566 Southwest

Anytime Fitness Oak Park Plaza 10855 University Ave Blaine 5,065 Northeast

Naf Naf Grill City Center 40 S 7th St Minneapolis 2,489 Mpls CBD

Princess Jewelers Lake Plaza Shopping Center 17400 Kenwood Trl Lakeville 2,387 Southeast

Five Guys RBC Plaza 555 Nicollet Mall Minneapolis 2,200 Mpls CBD

Firehouse Subs Park Place on France 10700-10760 S France Ave Bloomington 1,900 Southwest

Wireless Vision c/o T Mobile Park Place on France 10700-10760 S France Ave Bloomington 1,389 Southwest

Significant Lease and Sales Activity

PGA Tour, a golf superstore, entered the Minneapolis-St. Paul market, leasing 41,000 square feet at Ridgeview Plaza in Minnetonka in a space formerly occupied by Sports Authority.

Ridgeview PlazaFresh Thyme and Pet Supplies Plus opened at Vadnais Square Shopping Center in Vadnais Heights, replacing a Festival Foods.

Vadnais Square

6 Minneapolis-St. Paul Research & Forecast Report | Quarter 1 | Retail | Colliers International

Sales Activity

PROPERTY NAME ADDRESS CITY BUYER SELLLER SF PRICE PRICE PSF

White Bear Marketplace 3201 White Bear Ave White Bear Lake Menard Incorporated Oppidan

Investment Co 118,627 $30,067,721 $253

Mills Fleet Farm 1001 Industrial St Hudson STORE Capital (REIT) KKR 187,876 $16,980,171 $90

Plymouth Plaza 1415 County Rd 101 Plymouth Rick Pietrusa

Globe University and Minnesota

School of Business

71,209 $12,300,000 $173

The Grove 9875 Maple Grove Pkwy Maple Grove Hempel Properties Ryan Companies 62,000 $11,982,678 $193

1350 Town Centre Dr 1350 Town Centre Dr Eagan VEREIT Charles Grobe 97,097 $9,176,000 $95

Valley Ridge Shopping Center

1240-1560 Frontage Rd W Stillwater TML Associates Kriss Novak 83,149 $8,631,800 $104

1901 American Blvd W 1901 American Blvd W Bloomington Stuart Companies David Knoblauch 74,148 $8,000,000 $108

Cedar Point Commons 1800 E 66th St Richfield Hempel Properties Ryan Companies 32,000 $7,259,316 $227

CVS 5801 Brooklyn Blvd Brooklyn Center

SCP 129 Brooklyn Center LLC

Elzee Construction/Zisman Family

13,013 $6,250,000 $480

5901 Norwich Ave N 5901 Norwich Ave N Stillwater OPC Properties LLC CSM Corp 26,097 $6,200,000 $238

501 Washington Avenue South

501 Washington Ave S Minneapolis LS Capital

Maplewood Development &

Construction INC30,000 $6,116,667 $204

Walmart 4405 Pheasant Ridge Dr NE Blaine At Home Walmart 140,684 $5,200,000 $37

5220 Central Ave NE 5220 Central Ave NE Fridley Cleveland Holdings LLC Venture Pass Partners LLC 10,423 $5,070,000 $486

2480 Cleveland Ave 2480 Cleveland Ave Roseville Acorn Mini-Storage XII LLC Schafer Richardson Inc 85,476 $4,552,500 $53

Walgreens 6625 University Ave NE Fridley Robert Talbott MMG Equity

Partners 12,173 $4,426,229 $364

Dakota Retail Center 190 Lake Dr E Chanhassen David P Johnson The Driessen Group 8,000 $4,300,000 $538

18130-18200 Zane St NW 18130-18200 Zane St NW Elk River Paster Enterprises LLC

Russell McGinty & Belinda McGinty

15,359 $3,962,247 $258

9913 214th Street West 9913 214th St W Lakeville Simply Self Storage Lakeview Bank 70,535 $3,800,000 $54

Buffalo Crossroads 610 Crossroads Campus Dr Buffalo BRI-Mar I LLC Buffalo

Crossroads LLC 19,712 $3,800,000 $193

US Bank 1950 Cliff Lake Rd Eagan Eagan Property LLC Gregory Hoffman 7,184 $3,350,000 $466

17504 Dodd Boulevard 17504 Dodd Blvd Lakeville Dennis Gudim, Brent Kvittem, & Lisa Kvittem HJ Development 8,357 $2,690,674 $322

Cedar Hills Shopping Center

10976 Cedar Lake Rd Minnetonka CPEC Exchange 40533 LLC CHSC Holdings

Inc 12,113 $2,605,000 $215

71 Minnesota Avenue 71 Minnesota Ave Little Canada Wellington Management Ballysub LLC 46,842 $2,435,000 $52

18033 Zane St NW 18033 Zane St NW Elk River Paster Enterprises LLCRussell McGinty

& Belinda McGinty

7,899 $2,037,749 $258

Dunn Bros Coffee 201 3rd Ave S Minneapolis ICM Realty Group Ltd Beryl Miller 3,000 $305,281 $102

7Minneapolis-St. Paul Research & Forecast Report | Quarter 1 | Retail | Colliers International

Submarket Total SF

Direct Vacant SF

% Vacant Direct

Sublease Vacant SF

% Vacant W/ Sublease Absorpotion

YTD Absorption

Minneapolis CBD 980,041 149,854 15.3% 0 15.3% 4,649 4,649

NortheastCommunity Center 4,016,187 145,137 3.6% 0 3.6% (55,748) (55,748)

Neighborhood Center 4,366,609 251,288 5.8% 0 5.8% (6,059) (6,059)

Regional Center 2,914,077 36,038 1.2% 0 1.2% 975 975

Totals: 11,296,873 432,463 3.8% 0 3.8% (60,832) (60,832)

NorthwestCommunity Center 5,585,941 366,336 6.6% 0 6.6% 43,018 43,018

Neighborhood Center 8,783,468 551,091 6.3% 1,500 6.3% (643) (643)

Outlet Mall 430,000 0 0.0% 0 0.0% 0 0

Regional Center 3,900,369 84,844 2.2% 0 2.2% 8,318 8,318

Totals: 18,699,778 1,002,271 5.4% 1,500 5.4% 50,693 50,693

SoutheastCommunity Center 4,119,949 152,779 3.7% 61,736 5.2% 5,353 5,353

Neighborhood Center 6,632,703 411,115 6.2% 1,500 6.2% (13,702) (13,702)

Outlet Mall 409,000 0 0.0% 0 0.0% 0 0

Regional Center 6,015,202 99,164 1.6% 3,003 1.7% 36,759 36,759

Totals: 17,176,854 663,058 3.9% 66,239 4.2% 28,410 28,410

SouthwestCommunity Center 3,096,190 127,879 4.1% 0 4.1% (1,295) (1,295)

Neighborhood Center 5,900,895 362,635 6.1% 0 6.1% 12,260 12,260

Regional Center 5,934,679 33,545 0.6% 0 0.6% 1,350 1,350

Totals: 14,931,764 524,059 3.5% 0 3.5% 12,315 12,315

Total All MarketsCBD of Minneapolis 980,041 149,854 15.3% 0 15.3% 4,649 4,649

Community Center 16,818,267 792,131 4.7% 61,736 5.1% (8,672) (8,672)

Neighborhood Center 25,683,675 1,576,129 6.1% 3,000 6.1% (8,144) (8,144)

Outlet Mall 839,000 0 0.0% 0 0.0% 0 0

Regional Center 18,764,327 253,591 1.4% 3,003 1.4% 47,402 47,402

Totals: 63,085,310 2,771,705 4.4% 67,739 4.5% 35,235 35,235

Market Statistics

BROKERAGE SERVICES CONTACT:William M. Wardwell SIOR

Executive Vice President | Brokerage Minneapolis-St. Paul+1 952 897 7828bill.wardwell@colliers.com

FOR MORE INFORMATION:Maura Carland Director of ResearchMinneapolis-St. Paul+1 952 828 7219maura.carland@colliers.com

Copyright © 2015 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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