10-year high for absorption; build-to-suit projects … states...amazon 1 shenandoah drive shakopee...

10-year high for absorption; build-to-suit projects limit absorption at speculative facilities

Research & Forecast Report

minneapolis-st. paul | industrialQuarter 3 2015

Vacancy and absorption trends The vacancy rate in the Minneapolis-St. Paul Industrial market was 8.0 percent as of the third quarter of 2015. Absorption was 1,450,265 square feet, bringing the year-to-date total to 2,689,077 square feet. This puts 2015 absorption on track to be the highest in ten years. The largest amount of absorption occurred at Canterbury Distribution Center where Polaris absorbed 870,128 square feet of space at the former Kmart Distribution Center. In addition, McKesson absorbed 60,874 square feet at Diamond Lake Industrial Center, Anagram absorbed 57,873 square feet at University Industrial Park, and OnTrac/Express Messenger moved into more than 53,000 square feet at Northern Stacks Building I.

Many large tenants have chosen to build their own facilities in order to forgo the process of customizing an existing building for their use. The list of tenants that chose build-to-suit construction over existing include Room & Board, Blu Dot, Perbix, Amazon, Bayer CropScience, Ruan, Wurth Adams, Perbix, and Olympus. In the meantime, developers have added over 1.6 million square feet of speculative space year-to-date and an additional 757,000 square feet of speculative space is under construction. In the Southwest bulk warehouse market alone, the vacancy has increased from 6.6 percent at year-end 2013 to the current rate of 14.5 percent. The lack of large users of more than 100,000 square feet, along with the significant number of options available, may result in longer-than-expected leasing times at new bulk multi-tenant buildings.

Activity is strong among office showroom space users, especially in the southern submarkets. While there is still significant vacancy in some properties, these tend to be obsolete or poorly-located buildings. Concessions are decreasing among well-located, functional office showroom properties. Also in demand across all submarkets are owner-user buildings where there are more buyers than sellers in the market.

Market IndicatorsRelative to prior period Q3 2015 VACANCY NET ABSORPTION RENTAL RATE

Vacancy

20%

15%

10%

5%

0

8.6%

13.1% 12.5% 11.5%

Perc

ent V

acan

t

10.5% 9.4% 8.6%

Net Absorption4,000,0003,000,0002,000,0001,000,000

0(1,000,000)(2,000,000) (3,000,000)(4,000,000)

(928,872)

(2,430,461)

1,369,692914,877

SF A

bsor

bed 1,261,325

1,677,7072,011,292

2,689,077

2007 2009 2010 2011 2012 2013 2014 2015 Q3

8.0%

2008 2009 2010 2011 2012 2013 2014 2015 Q3

10.4%

2005

9.0%

2006

10.4%

2008

2,782,090

2005

1,355,744

2006

1,410,063

2007

2 Minneapolis-St. Paul Research & Forecast Report | Quarter 3 | Industrial | Colliers International

The recently-released Colliers 2015 Global Logistics Report titled “From First Mile to Last Mile” examines the next generation of warehousing and logistics patterns. Dwight Hotchkiss, National Director of Industrial for Colliers | U.S. and President of Brokerage Services | U.S says, “Our analysis finds that e-commerce and evolving delivery methods are the primary factors driving the shape of the logistics sector both today and in the future as e-retailing is slated to increase significantly in cities and towns across the globe.”

The study reports on the expansion of “First Mile” distribution centers and the contraction of “Last Mile” urban warehouses. As e-commerce grows, First Mile facilities are critical as the first point of dedicated distribution in increasingly sophisticated distribution systems. These facilities are growing in size and becoming more automated with sophisticated picking and sorting systems. Last mile logistics channels are the most complex and often the most expensive and inefficient portion of the distribution chain. The shortest possible route for deliveries is critical and has led e-commerce retailers to add smaller, but urban, warehouses to provide quick delivery. The report highlights the Amazon model, which includes large regional distribution facilities along with urban warehouses that enable their new “Prime Now” service to provide deliveries in as little as an hour.

This trend is playing out locally as Amazon builds a large 820,000-square-foot distribution facility in Shakopee providing a First Mile location. In addition, Amazon is opening a 162,000-square-foot “sortation” center in Shakopee and a 36,000-square-foot location in Minneapolis near its border with St. Paul; providing Last Mile warehousing.

20

15

10

5

0

7.7% 7.1%10.6%

6.1%8.1%

Airport/Southof the River

MinneapolisNorth

Southwest St. PaulEast

West/Northwest

Q3 Vacancy

Perc

ent V

acan

t

1,000,000

500,000

0

(500,000)

(1,000,000)

156,469

245,345

320,237

Airport/Southof the River

MinneapolisNorth

Southwest St. PaulEast

West/Northwest

(6,287)

734,345

Q3 Absorption

SF A

bsor

bed

Future Trends The city of Shakopee continues to transform into one of the state’s biggest clusters of technology companies. Amazon is moving forward with its $220M, 820,000-square-foot distribution center in Shakopee. Amazon also plans to lease a separate building in Shakopee, the 162,000-square-foot Minnesota Valley Distribution Center I for use as a sorting center.

The ongoing challenge of increasing construction costs continues. The demand for materials and workers for other regional projects, including the new Vikings stadium, lengthens timelines and increases costs. While this is challenging for developers and builders, it makes for high replacement costs which helps keep sale prices up at existing buildings.

Global Spotlight

Visit www.colliers.com/research to download the full 2015 Global Logistics Report.

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

MINNeApoLIs NoRth> 93,300 SF> 2 projects

10

94 94

35E

35E

61

5

100

62

41

55

55

55

77

13 3

13

94

169

169

169

494

35W

12

5212

212

610

694

65

55

1094 97

35E

694 36

61

52

35WRogers

SpringPark

St. Paul

Cottage Grove

InverGrove

HeightsEagan

St. PaulPark

SouthSt. Paul

AppleValley

WestSt. Paul

MendotaHeights Woodbury

Afton

LakeElmo

Oakdale

Maplewood

NorthSt. Paul

LittleCanada

Lauderdale

EdenPrairie

Minnetonka

Hopkins

Wayzata

Deephaven

Greenwood

Bloomington

Rosemount

EdinaRichfield

GoldenValley

St. LouisPark

SaintAnthony

Minneapolis

Medina

Orono

Chaska

ExcelsiorShorewood

Victoria

Chanhassen

Shakopee

MaplePlain

TonkaBay

Mound

Minnetrista

Roseville

White BearLake

VadnaisHeights

GemLake

Centerville

Lexington

Circle Pines

Hugo

Shoreview

ArdenHills

LinoLakes

NorthOaks

Grant

Stillwater

Dellwood

Pine Springs

Willernie

Osseo

Champlin

MapleGrove

Plymouth

NewHope

BrooklynCenter Columbia

Heights

SpringLakePark

NewBrighton

MoundsView

Fridley

Crystal

Blaine

Robbinsdale

Coon Rapids

Brooklyn Park

Dayton

Corcoran

Greenfield

Hanover

Independence

Loretto

Otsego

Albertville

Ramsey

St. Michael

Elk River

Andover

Anoka

HamLake

Columbus

ForestLake

Scandia

West/Northwest

MinneapolisNorth

St. PaulEast

Airport/South ofthe River

Southwest

west/NoRthwest> 1,233,800> 7 projects

oVeRALL MARket> 3,253,448 SF under construction> 757,598 SF speculative> 2,495,850 SF build-to-suit

southwest> 1,140,850 SF> 3 projects

st. pAuL eAst> 697,498 SF> 3 projects

AIRpoRt/south of the RIVeR> 88,000 SF> 1 project

Industrial Under Construction

pRopeRty NAMe AddRess cIty subMARket sf deVeLopeR

Uponor Expansion 150th St W & Johnny Cake Ridge Rd Apple Valley Airport/South of

the River 88,000 Uponor

Red Fox Business Center Bldg 2 1235 Red Fox Road Arden Hills Minneapolis North 50,000 Roberts Management Group

Red Fox Business Center Bldg I 1235 Red Fox Road Arden Hills Minneapolis North 43,300 Roberts Management Group

Amazon 1 Shenandoah Drive Shakopee Southwest 820,000 BTS-Amazon

Valley Park Business Center Innovation Blvd & Innovation Dr Shakopee Southwest 216,000 Opus Group

Ziegler Industries 1201 W. 96th St Bloomington Southwest 104,850 Ziegler Industries

3M Research Facility McKnight Rd & Conway Ave Maplewood St. Paul East 400,000 3M - Kraus Anderson

Office-Warehouse Building 1771 Energy Park Drive St. Paul St. Paul East 190,000 United Properties/St. Paul Port Authority

Bridgepoint Business Center III 201 Armour Avenue South St. Paul St. Paul East 107,498 Interstate Partners

Fedex Distribution Center 12395 Brockton Ln N Rogers West/Northwest 350,000 Scannell Properties

Kinghorn Logistics Hub 19401 Rogers Drive Rogers West/Northwest 221,000 Scannell Properties

North Cross Business Park Highway 610 & Highway 169 Brooklyn Park West/Northwest 182,000 United Properties

Wurth Adams Facility Highway 610 & Highway 169 Brooklyn Park West/Northwest 170,000 United Properties

169 North Business Center 85th Ave & Wyoming Ave Brooklyn Park West/Northwest 145,800 Opus/Founders Properties

Capstone Business Center 9325 Winnetka Ave N Brooklyn Park West/Northwest 105,000 Capstone Quadrangle

Minneapolis Business Center II 4821 Xerxes Ave N Brooklyn Center West/Northwest 60,000 Hyde Development

Industrial Under Construction


Lease Activity

teNANt buILdING NAMe AddRess sf subMARket type

Data Recognition Corp 7300 Northland Dr 7300 Northland Dr 185,500 Northwest Renewal

Guardian Building I-94 Distribution Center 22000 Industrial Blvd 116,042 Northwest New

Wells Fargo Hennepin Business Center Bldg A 1001 10th Ave 95,000 Northeast Renewal

LSI Corporation 2100 N Xenium Ln 2100 N Xenium Ln 64,134 Northwest Renewal

Ferguson Minneapolis Business Center II 4821 N Xerxes Ave 60,000 Northwest New

OnTrac/Express Messenger Northern Stacks Bldg 1 4607 E River Rd 53,370 Northeast New

Sky Group Inc Kasota Distribution Center 2565 Kasota Ave 51,600 Northeast Sublease

Goodwill Industries 747-755 Prior Ave N 747-755 Prior Ave N 45,000 Northeast Expansion

Bailiwick Inc 4250 Norex Dr 4250 Norex Dr 41,506 Southwest Sublease

Reliance One Boulder Lakes Office III 3000 Ames Crossing Rd 37,065 Southeast Renewal

Master Technology Technology Park VIII 7600-7650 Golden Triangle Dr 33,698 Southwest New

Amazon Kasota Business Center II 745-769 Kasota Ave SE 36,243 Northeast New

Aphrodite Womens Health Staring Lake Corporate Center 13200 Pioneer Trl 33,043 Southwest New

Vida Recycling Wycliff Industrial Center 2327 Wycliff St 31,944 Northeast New

significant Lease and sales Activity

I-94 Distribution Center Guardian Building leased 116,042 square feet at the I-94 Distribution Center

Minneapolis Business Center II Ferguson leased 60,000 square feet at Minneapolis Business Center II

Northern Stacks OnTrac/Express Messenger leased 53,370 square feet at Northern Stacks Building I in Fridley


Sales Activity

pRopeRty NAMe AddRess cIty buyeR seLLLeR subMARket sf pRIce pRIce psf

BAE Building 4800 E River Rd Fridley Gramercy Property Trust

Hyde Development JV Mortenson Development

West/Northwest 585,200 $46,800,000 $80

5500 Feltl Rd 5500 Feltl Rd HopkinsCarter Validus Mission Critical REIT II

Liberty Property Trust

West/Northwest 135,000 $19,900,000 $147

435 Park Ct 435 Park Ct Circle Pines Biynah Industrial Partners

Sentinel Real Estate

Minneapolis North 265,516 $16,050,000 $60

Powers Place 8100 Powers Blvd Chanhassen JCC 8100 Powers Boulevard LLC United Properties Southwest 140,800 $14,200,000 $101

610 Business Center IV 9310 Winnetka Ave N

Brooklyn Park Lone Star Funds IRET Properties West/

Northwest 78,190 $10,200,000 $130

Plymouth Tech Center 13400 15th Ave N Plymouth The Dakota REIT Continental Property Group

West/Northwest 45,559 $4,400,000 $97

1900 94th St W 1900 94th St W Bloomington JMS Custom Homes Reed Nelson West/Northwest 91,173 $3,300,000 $36

Gildon Building 8617 Xylon Ct Brooklyn Park

Diversified Plastics Inc United Properties West/

Northwest 52,250 $3,250,000 $62

14410 21st Avenue North 14410 21st Ave N Plymouth Twin City Outdoor

ServicesPlymouth 21st Avenue LLC Southwest 52,946 $3,150,000 $59

1245 Lakeview Drive 1245 Lakeview Dr Chaska Eden Trace CorpConsolidated

Graphics Properties II

Southwest 65,950 $3,147,500 $48

2922 W Service Rd 2922 W Service Rd Saint Paul Beacon Roofing Supply

Barrett Moving & Storage

Airport/South of the

River53,654 $3,047,500 $57

9905 13th Ave N 9905 13th Ave N Plymouth Dave Gonyea Welsh Companies West/Northwest 29,770 $2,910,894 $98

14850 Deveau Pl 14850 Deveau Pl Minnetonka Lind Electronics Eagle Ridge Partners

West/Northwest 36,053 $2,767,000 $77

13600 Water Tower Circle

13600 Water Tower Cir Plymouth Finke Associates Guy & Pauline H

WarnerWest/

Northwest 56,000 $2,700,000 $48

17834 Industrial Cir NW

17834 Industrial Cir NW Elk River ERBP DST AVR Inc West/

Northwest 50,585 $2,600,000 $51

BAE Building A joint venture between Hyde Development and Mortenson Development sold the BAE Building for $46,800,000 to Gramercy Property Trust. The price is three times the price the sellers paid for a 122 acre site that includes this building


SubmarketTotal SF

Direct Vacant SF

% Vacant Direct

Sublease Vacant SF

% Vacant W/Sublease

Low-High Asking Rate

Q3 2015 Absorption

YTD Absorption

Airport/south of the RiverBulk Warehouse 5,365,858 225,079 4.2% 8,143 4.3% $4.10-$8.75 0 (5,344)

Office Showroom 3,450,779 489,441 14.2% 33,554 15.2% $4.50-$9.30 15,248 82,396 Office Warehouse 9,229,313 674,282 7.3% 66,602 8.0% $4.57-$9.22 141,221 204,121

Totals: 18,045,950 1,388,802 7.7% 108,299 8.3% $4.50-$9.20 156,469 281,173

Minneapolis NorthBulk Warehouse 5,260,008 563,408 10.7% 10,000 10.9% $4.25-$10.08 (100,456) (54,510)Office Showroom 4,345,746 392,467 9.0% 7,947 9.2% $4.91-$9.72 (37,786) 27,443 Office Warehouse 17,209,137 957,017 5.6% 2,400 5.6% $4.76-$8.88 131,955 236,480

Totals: 26,814,891 1,912,892 7.1% 20,347 7.2% $4.77-$9.20 (6,287) 209,413

southwestBulk Warehouse 7,373,802 1,071,977 14.5% 0 14.5% $4.38-$7.63 833,396 1,031,528 Office Showroom 7,158,237 895,247 12.5% 98,864 13.9% $5.12-$9.61 (121,750) 28,165 Office Warehouse 14,668,458 1,119,916 7.6% 192,252 8.9% $4.89-$9.18 22,699 80,917

Totals: 29,200,497 3,087,140 10.6% 291,116 11.6% $4.94-$9.27 734,345 1,140,610

st. paul eastBulk Warehouse 9,041,404 638,710 7.1% 0 7.1% $4.24-$8.37 81,056 (49,747)Office Showroom 2,480,045 186,420 7.5% 6,420 7.8% $5.86-$10.17 8,090 143,469 Office Warehouse 12,483,662 638,736 5.1% 155,800 6.4% $5.28-$9.66 156,355 318,176 Totals: 24,005,111 1,463,866 6.1% 162,220 6.8% $5.23-$9.54 245,501 411,898

west/NorthwestBulk Warehouse 12,655,215 1,513,193 12.0% 82,983 12.6% $4.54-$8.55 274,235 266,744

Office Showroom 5,654,591 555,084 9.8% 90,887 11.4% $5.08-$9.57 2,028 (24,033)

Office Warehouse 21,649,979 1,186,893 5.5% 83,217 5.9% $4.90-$8.82 43,974 403,272

Totals: 39,959,785 3,255,170 8.1% 257,087 8.8% $4.87-$8.97 320,237 645,983

total All MarketsBulk Warehouse 39,696,287 4,012,367 10.1% 101,126 10.4% $4.39-$8.52 1,088,231 1,188,671

Office Showroom 23,089,398 2,518,659 10.9% 237,672 11.9% $5.05-$9.62 (134,170) 257,440

Office Warehouse 75,240,549 4,576,844 6.1% 500,271 6.7% $4.88-$9.10 496,204 1,242,966

Totals: 138,026,234 11,107,870 8.0% 839,069 8.7% $4.87-$9.20 1,450,265 2,689,077

Market statistics

The above table is summarized data on multi-tenant industrial buildings greater than 20,000 square feet. Not included are single-tenant or owner-occupied buildings.


Market statistics (expanded Market)

The above table is summarized data on multi- and single-tenant industrial buildings greater than 10,000 square feet. Owner-occupied properties are also included.

SubmarketTotal SF

Direct Vacant SF

% Vacant Direct

Sublease Vacant SF

% Vacant W/Sublease

Low-High Asking Rate

Q3 2015 Absorption

YTD Absorption

Airport/south of the RiverBulk Warehouse 17,074,080 552,947 3.2% 54,191 3.6% $5.03-$8.28 65,354 119,807

Office Showroom 4,679,267 506,662 10.8% 33,554 11.5% $4.74-$9.25 14,795 90,954 Office Warehouse 10,870,022 685,638 6.3% 66,602 6.9% $5.12-$9.39 133,524 141,896

Totals: 32,623,369 1,745,247 5.3% 154,347 5.8% $4.98-$9.08 213,673 352,657

Minneapolis NorthBulk Warehouse 20,389,616 741,229 3.6% 21,222 3.7% $5.33-$9.09 16,974 40,870 Office Showroom 6,119,792 476,299 7.8% 7,947 7.9% $5.41-$9.80 (108,869) 8,960 Office Warehouse 19,463,623 1,021,558 5.2% 2,400 5.3% $4.75-$8.87 67,414 67,606

Totals: 45,973,031 2,239,086 4.9% 31,569 4.9% $5.04-$9.18 (24,481) 117,436

southwestBulk Warehouse 23,610,222 1,520,998 6.4% 325,026 7.8% $4.46-$6.70 1,182,967 1,306,117 Office Showroom 8,677,779 943,947 10.9% 98,864 12.0% $5.12-$9.62 (112,023) (8,296)Office Warehouse 17,576,010 1,555,141 8.8% 192,252 9.9% $4.96-$9.16 (24,221) (390,522)

Totals: 49,864,011 4,020,086 8.1% 616,142 9.3% $4.92-$8.98 1,046,723 907,299

st. paul eastBulk Warehouse 19,253,536 746,120 3.9% 0 3.9% $4.80-$8.51 152,917 (54,350)Office Showroom 4,026,510 213,044 5.3% 6,420 5.5% $7.51-$11.20 8,918 84,184 Office Warehouse 20,760,639 656,161 3.2% 155,800 3.9% $5.18-$9.32 156,355 249,228 Totals: 44,040,685 1,615,325 3.7% 162,220 4.0% $5.64-$9.54 318,190 279,062

west/NorthwestBulk Warehouse 36,962,108 2,261,963 6.1% 455,787 7.4% $4.75-$7.77 348,408 1,224,812

Office Showroom 8,002,881 589,849 7.4% 90,887 8.5% $5.06-$9.57 (6,599) (2,190)


Totals: 70,752,444 4,184,491 5.9% 671,891 6.9% $5.02-$8.73 483,222 1,656,141

total All MarketsBulk Warehouse 117,289,562 5,823,257 5.0% 856,226 5.7% $4.81-$7.92 1,766,620 2,637,256

Office Showroom 31,506,229 2,729,801 8.7% 237,672 9.4% $5.35-$9.73 (203,778) 173,612


Totals: 243,253,540 13,804,235 5.7% 1,636,169 6.3% $5.07-$9.02 2,037,327 3,312,595

bRokERAgE SERVICES CoNTACT:William M. Wardwell SIOR

Executive Vice President | Brokerage Minneapolis-St. Paul+1 952 897 [email protected]

FoR MoRE INFoRMATIoN:Maura Carland Director of ResearchMinneapolis-St. Paul+1 952 828 [email protected]

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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10-year high for absorption; build-to-suit projects … states...amazon 1 shenandoah drive shakopee...

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