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CBRE <br />MARKETVI <br />EW MINNEAPOLIS/ST. PAUL INDUSTRIAL <br />MARKET OVERVIEW CONT'D <br />The roughly 80% occupancy of the 1.7 million sq. <br />ft. of space delivered in Q1 2015 points to a <br />second phase of construction and development <br />that should last through the end of the year. Other <br />key drivers are the vacancy and availability rates <br />which steadily continue to fall. The total vacancy <br />after Q2 2015 was 5.0% with the total availability <br />rate just under 7.0%. Newcomers, both developers <br />and institutional investors alike, are entering into <br />the market and echoing the notion that <br />Minneapolis/St. Paul is more than a mid -market, <br />middle of the pack economy where it has been <br />historically categorized. The Minneapolis/St. Paul <br />Industrial Market currently ranks 11th in the <br />country in terms of sq. ft. (see figure 10). <br />By far the largest deal of the quarter and in recent <br />history was Polaris occupying Kmart's former 1.1 <br />million -sq. -ft. facility in Shakopee. Vacant since <br />2013, Polaris occupied more than 870,000 sq. ft. <br />of the former distribution center at 901 <br />Canterbury Road. With this deal, overall net <br />absorption was north of 1.3 million sq. ft. for the <br />quarter. While institutional sales and increasing <br />demand continues, particularly for flex product, <br />available sites for development are being swept off <br />the market. This has led to further <br />Figure 2: Market Availability <br />Vacancy/Availability Rate (%) <br />14 <br />12 <br />10 <br />8 <br />6 <br />4 — <br />2 <br />0 <br />compression of cap rates and investor <br />preferences such as clear height, <br />becoming less significant. Investors are <br />willing to buy lower quality product to <br />simply get involved and be a player in the <br />Minneapolis/St. Paul market. <br />The Arrival of Amazon <br />With approvals and plans in place, we can <br />expect to see construction of Amazon's <br />820,000 -sq. -ft. distribution center in Shakopee <br />take off on the 69.2 -acre site. Sold by United <br />Properties in late June, the company will take <br />advantage of approximately $5.8 million in tax <br />revenue to improve roads and other <br />infrastructure near the site. While initially asking <br />for more tax -payers' dollars, the question <br />remains regarding the impact of the arrival on <br />the Minneapolis/St. Paul market and local <br />economy. Amazon plans to create 1,000 full- <br />time jobs, but many potential jobs will be <br />fulfilled by machines in order to speed up their <br />core operations. Now that this public financing <br />is final, city and state officials will be scrutinizing <br />the financial benefits of tax increment financing <br />(TIF) for large corporations more than ever. <br />Before the approval of the distribution center, <br />Amazon leased a 162,000 -sq. -ft. building in <br />Shakopee as well. <br />Stock (MSF) <br />334 <br />1 Ilifit1 <br />2005 2006 2007 2008 2009 2010 2011 2012 <br />• Stock* (R) Vacancy Rate (L) <br />Q2 2015 CBRE Research <br />1 <br />2013 2014 2015 YID <br />332 <br />330 <br />328 <br />326 <br />324 <br />322 <br />320 <br />318 <br />316 <br />314 <br />312 <br />Availability Rate (L) Source: CBRE Research, 02 2015. <br />*Represents Industrial buildings 10,000 sq. ft. and up. <br />© 2015 CBRE, Inc. 1 2 <br />