Absorption strong as competitive grocery market shows no signs of slowing

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1 Research & Forecast Report MINNEAPOLIS-ST. PAUL RETAIL Quarter Absorption strong as competitive grocery market shows no signs of slowing Vacancy and absorption trends The vacancy rate in the Minneapolis-St. Paul retail market was 4.3 percent, and there was 431,920 square feet of absorption during the third quarter. After a slow start to 2015, with only 68,246 square feet absorbed during the first quarter, the pace picked up for Quarters Two and Three. There was 376,299 square feet of absorption in the second quarter to bring the year-to-date total to 876,465 square feet. Market Indicators Relative to prior period Q VACANCY NET ABSORPTION RENTAL RATE Grocers lead absorption and construction Grocers are staking out claims in the Minneapolis- St. Paul area. Although Rainbow Foods closed its Minnesota stores during 2014, Lunds & Byerly s and Cub Foods scooped up many of the locations. Jerry s opened a store in Woodbury during the first half of the year. During the third quarter, HyVee opened two stores in New Hope and Oakdale, Fresh Thyme Farmers Market opened in Bloomington, and Kowalski s opened in Excelsior. In addition, Walmart opened a new store in Blaine. Planned or under-construction grocery stores include a Cub Foods in White Bear Lake, Fresh Thyme Farmers Markets in Plymouth, St. Paul, and Minneapolis, and Whole Foods in Woodbury and St. Paul. HyVee is planning steady growth and in addition to the two stores that opened recently, they have stores opening in 2016 in Lakeville and Brooklyn Park with longer-term plans to open four to five stores per year for the next few years. HyVee differentiates its stores with upscale finishes, friendly service, and extensive instore features such as liquor stores, flowers, wellness and in-store dieticians and chefs. SF Absorbed Vacancy Percent Vacant 10% 8% 6% 4% 2% 0 5.1% Net Absorption 1,000, ,000 0 (500,000) (1,000,000) (335,329) 6.9% 7.3% 6.8% (143,478) 508, % 632, % 431, % 4.3% YTD 872, ,465 (962,017) Q3 We expect to see existing grocery retailers to continue to transform and push to differentiate in this crowded market.

Tenant activity: Yogurt, burgers and pizza fade; fresh is next

an emphasis on organic and farmto-table ingredients.

Freshii, Modmarket, Café Zupas, Greenfield Natural Kitchen,

Mobile technology tenants from retailers to repair continue to

While not always able to pay high rents, they do absorb spaces

Both Target and Walmart have smaller-sized store models they

stores built in the outskirts or suburbs.

and even the extensive merchandise options through their

self-checkout and the addition of more quick-checkout lanes.

distribution space in addition to standard retail shopping

The convenience factor While grocery delivery has been around

provide this service, we are seeing new players competing in

Instacart also entered the scene recently and uses shoppers

2 Tenant activity: Yogurt, burgers and pizza fade; fresh is next The ever-evolving landscape of quick-serve restaurants (QSRs) is once-again seeing a new trend. The latest to emerge are focused on fresh salads and soups with an emphasis on organic and farmto-table ingredients. Examples expanding or looking to grow in this market include Freshii, Modmarket, Café Zupas, Greenfield Natural Kitchen, Sprout Salad Company, and MAD Greens. Mobile technology tenants from retailers to repair continue to seek out spaces at malls. While not always able to pay high rents, they do absorb spaces in Class B and C buildings that might otherwise sit empty. Both Target and Walmart have smaller-sized store models they are opening in urban locations, as opposed to their larger stores built in the outskirts or suburbs. They offer store pickup and provide the convenience and pricing and even the extensive merchandise options through their ability to quickly pull goods from a nearby super store in response to customer requests. Target is also focusing on convenience in-store with self-checkout and the addition of more quick-checkout lanes. These trends are effectively turning large super stores into distribution space in addition to standard retail shopping areas. The convenience factor While grocery delivery has been around for decades, and locally Lunds & Byerly s and Coborns all provide this service, we are seeing new players competing in this sector. Amazon Prime Now will deliver in an hour. Instacart also entered the scene recently and uses shoppers that go to select stores including Cub and Target to deliver within hours. These new services require online ordering options and either a warehouse to draw the goods from or the presence of a bricks-and-mortar store. Tenant Tracker Expanding New or Looking 2 Minneapolis-St. Paul Research & Forecast Report Quarter 3 Retail Colliers International

Spotlight Trends Trends to watch: Restaurants National restaurant chains are a big driver of demand for retail space in the commercial real estate market, and the growth or shrinkage of the

Colliers International got a sneak peek into the industry s current trends, courtesy of Run Ruggless of Nation s Restaurant News.

This is hurting national casual dining establishments such as Red Lobster, TGIF, Chili s, Applebee s, and Ruby Tuesdays.

3 Spotlight Trends Trends to watch: Restaurants National restaurant chains are a big driver of demand for retail space in the commercial real estate market, and the growth or shrinkage of the footprints of restaurants has a big impact on the ability of retail property owners to fill their space. Colliers International got a sneak peek into the industry s current trends, courtesy of Run Ruggless of Nation s Restaurant News. Current National Restaurant Trends > > Sit-down casual dining continues to shrink as millennials demand faster, cheaper, and better. This is hurting national casual dining establishments such as Red Lobster, TGIF, Chili s, Applebee s, and Ruby Tuesdays. > > The national burger category is beginning to see closures and shrinkage, as strong regional concepts that offer local tap beers and a more unique dining experience are creating competition for Five Guys and Smashburger, which are starting to close stores in some areas. > > The pizza category continues to be extremely competitive, and the demise of certain concepts is starting to take place if cash is not available to invest in improving quality and service. > > Consumer preferences continue to lean toward more healthy eating options. There is strong demand for quick, healthy options as millennials look to eat out more for specific occasions. > > Super Chix, a Yum! brand concept that offers high-quality chicken, is forecast to be a big growth concept by Nation s Restaurant News. > > Another big growth category is entertainment concepts mixed with food in the restaurant category. For example, concepts combining premium bowling with high-quality food are experiencing growth. The competitive quick-serve, fast-casual restaurant category has been a driving force in raising rents and lowering landlord concessions as the number of concepts looking for good locations exceeds the number of actual locations available, explains Terese Reiling-Holden, a vice president of retail brokerage. We will see how these national trends impact our local retail market as new players enter and older concepts vacate space. Terese Reiling-Holden Vice President Retail Leasing DIRECT terese.reiling@colliers.com Minneapolis-St. Paul Research & Forecast Report Quarter 3 Retail Colliers International 3

Minneapolis-St. Paul Retail Trade Areas Minneapolis-St. Paul s regional trade areas continue to outperform the rest of the market. Vacancy is 3.0 percent, compared to 4.

4 Minneapolis-St. Paul Retail Trade Areas Minneapolis-St. Paul s regional trade areas continue to outperform the rest of the market. Vacancy is 3.0 percent, compared to 4.3 percent in the overall retail market. These concentrations of retail are centered around regional malls that create synergies and make these areas highly soughtafter. Shopping options diversifying In addition to the Outlets at Albertville, Twin Cities Premium Outlets in Eagan opened a year ago to much success. Knollwood Mall was renovated and most of its interior common areas were demolished while entrances to stores were turned outward, repurposing it from an enclosed mall to a grocery-anchored power center with features similar to a lifestyle center in terms of access. Consumers are seeking the convenience and efficiency that outlet malls and open-air lifestyle centers provide, enabling them to get from one store to another without entering an enclosed structure. Local enclosed regional malls refresh While online sales are increasing and consumers often seek convenience, there is still demand for the social interaction, entertainment possibilities, and sense of community provided by going somewhere to shop. Successful regional malls are focusing on these elements of the shopping experience as a key differentiator. Ridgedale Mall, Mall of America, and Rosedale Mall are all either completing or undergoing major updates to stay relevant. Enhancements include upgraded interiors and community gathering spaces along with diverse shopping, restaurant, and entertainment options. Nordstrom recently opened at Ridgedale Mall, and the center boasts a renovated center court and new restaurants. The appeal of being near one of only two Nordstrom stores in Minnesota brought additional high-end specialty retailers including Tommy Bahama, Evereve, Athleta, and Michael Kors. The Mall of America opened a new food court, and the upscale JW Marriott is opening there in November. The mall is reporting strong interest in the 163,000 square feet of upscale retail space they are adding, but are being very selective in choosing the right luxury tenant mix. Rosedale has plans for a 140,000-square-foot addition, providing space for a new, but yet-unnamed anchor. Data Summary TRADE AREA SF VACANT %VACANT Q ABSORPTION Q ABSORPTION Q ABSORPTION YTD ABSORPTION Ridgedale 2,099,343 10, % (9,183) (9,075) Eagan Town Center 1,338,859 13, % 1,713 8,318 1,825 11,856 Southdale 5,235,596 86, % 3, ,749 47,641 Burnsville 3,020,067 61, % (8,307) 18,883 6,461 17,037 Eden Prairie 2,425,004 62, % (31,950) 2,786 0 (29,164) Arbor Lakes 5,050, , % (26,003) 80 7,297 (18,626) Woodbury 3,274,968 94, % 5,861 61,046 (33,663) 33,244 Apple Valley 2,093,585 80, % (5,000) (1,181) (10,310) (16,491) Northtown 2,492, , % 58,835 0 (290) 58,545 Rosedale 3,350, , % 4,838 (62,156) 0 (57,318) Maplewood 1,781,255 84, % 5,772 (23,078) 1,466 (15,840) South Robert 2,124, , % 1,768 14,169 44,791 60,728 Total 34,286,620 1,013, % 2,196 18,907 61,434 82,537 4 Minneapolis-St. Paul Research & Forecast Report Quarter 3 Retail Colliers International

Significant Lease and Sales Activity Lease Activity TENANT PROPERTY ADDRESS CITY SF TYPE At Home Vacant former Kmart 14230 Burnhaven Drive Burnsville 107,000 New Total Wine & More Arbor Lakes Retail

Plymouth Rd Minnetonka 15,000 New La-Z-Boy City Place Development SE of I94 and Radio Dr Woodbury 15,000 New Pour House Mayo Clinic Square 600 Hennepin Ave Minneapolis 10,337 New Applause Inc c/o

5 Significant Lease and Sales Activity Lease Activity TENANT PROPERTY ADDRESS CITY SF TYPE At Home Vacant former Kmart Burnhaven Drive Burnsville 107,000 New Total Wine & More Arbor Lakes Retail Center Elm Creek Blvd N Maple Grove 29,981 New Total Wine & More Village on the Ponds NWC Main Street & Lake Drive Chanhassen 19,000 New Total Wine & More Office Depot Plaza Plymouth Rd Minnetonka 15,000 New La-Z-Boy City Place Development SE of I94 and Radio Dr Woodbury 15,000 New Pour House Mayo Clinic Square 600 Hennepin Ave Minneapolis 10,337 New Applause Inc c/o Cheapo Records 2600 Nicollet Ave S 2600 Nicollet Ave S Minneapolis 9,024 Sublease Kirkland's Riverdale Village Riverdale Blvd Coon Rapids 8,501 New Maxville Services South Tamarack Square Coller Way Woodbury 8,256 New DaVita Dialysis Lexington Plaza Shoppes 1739 Lexington Ave N Roseville 8,106 New Homies Brewery Robitshek Office Building 25 4th St N Minneapolis 8,070 New Willy McCoys Park Place on France France Ave S Bloomington 6,750 New Engel & Voelkers 1601 Hennepin Ave 1601 Hennepin Ave Minneapolis 5,404 New Blue Cross and Blue Shield of Minnesota Crossroads of Roseville 1647B County Road B2 W. Roseville 4,700 New Angry Inch Brewing Company Holyoke Ave Holyoke Ave Lakeville 3,329 New Motley Crew's Heavy Metal Grill Holyoke Ave Holyoke Ave Lakeville 3,056 New Potbelly City Place Development SE of I94 and Radio Dr Woodbury 2,270 New At Home, a discount home goods store, will open a 170,000-square-foot store in the winter of K-Mart closed its doors at this location in December of Minneapolis-St. Paul Research & Forecast Report Quarter 3 Retail Colliers International 5

6 Sales Activity PROPERTY NAME ADDRESS CITY BUYER SELLLER PRICE PRICE PSF SF Chanhassen West Village Center 800 W 78th St Chanhassen West Lake Plaza Sw 12th St Forest Lake Champlin South Pond Aquila Dr N Champlin Lakeville Strip Center Kenwood Trl Lakeville Burnsville I Strip Center Co Rd 11 Burnsville Southdale 494 Shopping Center Heritage Commons Shopping Center Phase 3 IRET Properties $29,200,000 $ ,572 IRET Properties $8,824,421 $82 107,406 IRET Properties $1,788,857 $69 26,020 IRET Properties $779,529 $82 9,488 IRET Properties $700,492 $82 8, W 78th St Minneapolis Menards Welsh Companies $43,000,000 $ , Heritage Dr Lakeville Epic Real Estate Partners Lifetime Fitness 675 Commons Dr Saint Paul Life Time Fitness Inc Becker Furniture World Home Center Walgreens Shorewood Village Shopping Center st St Becker STORE Capital (REIT) Lyndale Ave S Minneapolis Rice Investment Partnership LLLP State Hwy 7 Excelsior Kraus-Anderson Brooklyn Park Commons 7625 Jolly Ln Minneapolis Gander Mountain & Goodwill Rogers Dr Rogers Blackhawk Investment Group LLC DRA Advisors JV RCG Ventures Sentinel Management Co The Sherman Group Becker Furniture World Capital Real Estate Shorewood Village Shopping Center LLC Northland Commercial Blackstone JV DDR $12,090,000 $87 138,690 $10,600,000 $145 73,050 $10,000,000 $38 261,000 $8,275,000 $591 14,000 $7,996,500 $129 62,061 $7,130,000 $204 34,993 $7,100,000 $154 46, E 78th St 1420 E 78th St Minneapolis Richfield Properties LLC Jon Bogen $5,800,000 $205 28,241 Tanger Furniture Outlets Walgreens And Tanger Dr 6625 University Ave NE North Branch William A Hinks 4323 Chicago Ave S 4323 Chicago Ave S Minneapolis Capital Real Estate Maple Ridge Center 9700 N 63rd Ave N Osseo MMS Properties LLC Eagle Creek Plaza 471 Marschall Rd Shakopee North Olive Branch LLC $4,000,000 $39 102,000 Minneapolis Pointe Group Anxon $3,967,000 $326 12,173 Tbi3057 LLC/Eagle Creek Plaza Partners LLC Main Street Village 500 5th Ave NW Saint Paul Shattuck Properties Century Plaza 2635 W 78th St Chanhassen John R Paulson Builders David P & Celeste J Johnson Shattuck Properties $3,800,000 $204 18,658 $3,700,000 $135 27,425 Ace Hardware $3,270,000 $124 26,460 Pratt Ordway Props Alshouse Properties LLC $3,240,000 $154 21,045 $3,175,000 $213 14,900 Walgreens 9273 Lake Dr Circle Pines Circle Pines Lake Drive LLC Scharfen Trust $3,025,000 $225 13,450 Southport Centre rd St W Saint Paul Raed Rashid Granada Shopping Center Granada Ave Saint Paul Linvill Properties Inc Oppidan Investment Co Seymour Wilensky $2,900,000 $429 6,758 $2,550,000 $65 39,200 6 Minneapolis-St. Paul Research & Forecast Report Quarter 3 Retail Colliers International

7 Market Statistics Submarket Total SF Direct Vacant SF % Vacant Direct Sublease Vacant SF % Vacant W/ Sublease 3rd Quarter Absorpotion YTD Absorption Minneapolis CBD 980, , % 75, % (10,884) (8,311) Northeast Community Center 4,082,362 74, % 0 1.8% 5, ,113 Neighborhood Center 4,279, , % 0 5.8% 245, ,194 Regional Center 2,914,077 37, % 0 1.3% 0 5,438 Totals: 11,276, , % 0 3.2% 251, ,745 Northwest Community Center 6,410, , % 64, % (50,138) 12,043 Neighborhood Center 8,275, , % 65, % 82,341 75,484 Outlet Mall 430, % 0 0.0% 0 0 Regional Center 4,557,671 88, % 0 1.9% 17,931 64,429 Totals: 19,673, , % 129, % 50, ,956 Southeast Community Center 4,324, , % 131, % 6,970 45,380 Neighborhood Center 6,662, , % 57, % 58, ,016 Outlet Mall 409, % 0 0.0% 0 0 Regional Center 6,054, , % 3, % (8,798) (10,898) Totals: 17,450, , % 192, % 56, ,498 Southwest Community Center 3,096,190 77, % 0 2.5% (16,856) (51,681) Neighborhood Center 5,914, , % 3, % 94, ,080 Regional Center 5,934,679 43, % 0 0.7% 6,778 42,178 Totals: 14,944, , % 3, % 84, ,577 Total All Markets CBD of Minneapolis 980, , % 75, % (10,884) (8,311) Community Center 17,913, , % 195, % (54,117) 198,855 Neighborhood Center 25,132,206 1,529, % 126, % 481, ,774 Outlet Mall 839, % 0 0.0% 0 0 Regional Center 19,460, , % 3, % 15, ,147 Totals: 64,325,593 2,765, % 400, % 431, ,465 Minneapolis-St. Paul Research & Forecast Report Quarter 3 Retail Colliers International 7

8 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 $2.3 billion in annual revenue BROKERAGE SERVICES CONTACT: William M. Wardwell SIOR Executive Vice President Brokerage Minneapolis-St. Paul bill.wardwell@colliers.com FOR MORE INFORMATION: Maura Carland Director of Research Minneapolis-St. Paul maura.carland@colliers.com Colliers International Minneapolis-St. Paul 4350 Baker Road, Suite 400 Minnetonka, MN billion square feet under management 16,300 professionals and staff 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.

The Changing Demographic of Consumers Presents a Break with Retailers of the Past

Research & Forecast Report MINNEAPOLIS-ST. PAUL RETAIL Q1 2017 The Changing Demographic of Consumers Presents a Break with Retailers of the Past Vacancy & Absorption Trends The vacancy rate in the Minneapolis-St.