Offices @ MOA in Southeast submarket lands its first tenant Class A sales pick up but historic building investment continues Development activity moves away from traditional Minneapolis CBD core

1. 2016 Q2 absorption by submarket
YTD office sales totals by class
Class A & B vacancy by Minneapolis CBD micromarkets
Offices @ MOA in Southeast submarket lands its first tenant
Supercomputing company Cray will relocate from downtown St. Paul to 87,500
square feet at the newly-delivered Mall of America office tower. A substantial loss
for St. Paul, but the CBD’s supply is being balanced with demand as idling office
inventory is converted into housing. Bloomington-based Timberland Partners has
begun transforming the once-vacant Sibley Square at Mears Park office building
into 134 market-rate apartments. The former Macy’s building, initially slated for
some multi-tenant office, will instead see a scaled-down redevelopment consisting
of a new Minnesota Wild hockey training facility and parking.
Class A sales pick up but historic building investment continues
In the largest sale of 2016 year-to-date, Franklin Street, a Massachusetts-based
REIT, bought Plaza Seven from City Center Realty Partners LLC for $82 million.
There are currently a number of other Trophy office buildings available on the
market, including Campbell Mithun and IDS Center. Yet the recent trend of
investment in value-add, historic office buildings on the peripheral of the traditional
downtown zone continues unabated. A joint venture involving The Excelsior Group
paid $29.5 million for the 203,000-square-foot Colonial Warehouse in April. The
Colonial Warehouse sits in the North Loop and was built in 1885.
Development activity moves away from traditional Minneapolis CBD core
As of this quarter, multiple new developments are underway in East Town, the
newly branded name for Downtown East and Elliot Park. The 172,000-square-foot
Millwright Building will be delivered a year from now in 2017, the Mill Place will
undergo a major renovation, and Kraus Anderson’s 100,000-square-foot BTS
headquarters facility has broken ground. To the north of the CBD core,
construction on T3 continues. United Properties has two proposed buildings in the
North Loop/Warehouse District. The Washington, a former adult store, is
undergoing conversion into fresh retail and office space. The exit of Duffey Paper
from the North Loop also promises upcoming inventory prime for redevelopment.
Development in the CBD core fails to attract the same level of interest. In late
2015, Franklin Street Properties proposed a 50-story, mixed-use development on
the current site of the 4-story TCF Bank building in downtown Minneapolis.
However, those plans have been scrapped in favor of a less substantial remodel.
Traditional CBD office reckons with shifting demand
2,257
73,402
48,435
14,725
5,091
-52,631
24,799
70,652
Minneapolis CBD
Saint Paul CBD
Southeast
West
Southwest
Northwest
Northeast
Office Insight
Minneapolis-St. Paul | Q2 2016
68,980,029
Total inventory (s.f.)
184,473
Q2 2016 net absorption (s.f.)
$25.76
Direct average asking rent
474,236
Total under construction (s.f.)
14.7%
Total vacancy
481,403
YTD net absorption (s.f.)
3.0%
12-month rent growth
40.4%
Total preleased
$0
$50,000,000
$100,000,000
$150,000,000
C
B
A
14.7%
11.5%
6.4%
1.6%
0%
5%
10%
15%
20%
-
20,000,000
40,000,000
60,000,000
Core Warehouse
District
North Loop Downtown
East
Inventory
Vacancy Rate

2. Current conditions – submarket Historical leasing activity (s.f.)
Source: JLL Research Source: JLL Research
Total net absorption (s.f.)
Source: JLL Research
Total vacancy rate (%)
Source: JLL Research
Direct average asking rent ($ p.s.f.)
Source: JLL Research
929,169
253,779
-1,661,963
-312,099
585,965
174,317 63,187
913,797 809,898
481,403
-2,000,000
-1,500,000
-1,000,000
-500,000
0
500,000
1,000,000
1,500,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD 2016
$23.32
$23.89 $23.92
$23.58 $23.50
$23.94
$24.35
$24.66
$25.16
$25.76
$20.00
$22.00
$24.00
$26.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2 2016
16.3%
15.8%
18.2%
18.7%
17.8% 17.5% 17.4%
16.0%
14.6% 14.7%
12.0%
14.0%
16.0%
18.0%
20.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2 2016
Landlordleverage
Tenantleverage
Peaking
market
Falling
market
Bottoming
market
Rising
market
4,126,595
4,378,569
4,111,400
3,837,051
1,549,570
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
2012 2013 2014 2015 YTD 2016
©2016 Jones Lang LaSalle IP, Inc. All rights reserved.For more information, contact: Carolyn Bates | carolyn.bates@am.jll.com
Southwest
Minneapolis CBD
Southeast
Northeast
St. Paul CBD
Northwest
West
Minneapolis market