Shifts in Consumer Demand Inspire New Retail Uses

Research & Forecast Report > MINNEAPOLIS-ST. PAUL Retail Q3 2017 Shifts in Consumer Demand Inspire New Retail Uses Vacancy and Absorption Trends The third quarter of 2017 returned a negative 153,000 square feet of absorption in the multi-tenant market, bringing the overall vacancy rate to 6.4%. This is an increase from last quarter when the vacancy rate was 6.2%. Year-to-date, the retail market is at negative 66,000 square feet of absorption. The five largest changes in vacancy this quarter were the result of closures and counted as negative in our total market statistics. Gordmans closed two stores, the 66,000-squarefoot Roseville location and the 45,000-square-foot Coon Rapids location. Additionally affecting multi-tenant vacancy was the closure several Gander Mountain stores. Q3 Market Indicators VACANCY NET ABSORPTION RENTAL RATE Relative to prior period MSP Retail Submarket Map The largest change in quarter three was the closing of JC Penny in Southdale Mall. A portion of the vacated space has already been signed by Lifetime Fitness. During construction, the space will be counted as vacant. The largest positive absorption was Hobby Lobby who occupied 52,000 square feet in Burnhill Plaza in Burnsville. 94 NORTHWEST 694 35W NORTHEAST 35E The Minneapolis CBD was a strong performing submarket in terms of absorption, with the largest change in vacancy happening this quarter with Nordstrom Rack opening in a long-vacant space in the IDS Crystal Court. The CBD however does retain the highest vacancy percentage of any submarket overall. Downtown retail is still a small market in comparison to suburban submarkets. The Southeast has the most absorption both this quarter and year-to-date, thanks in part to new construction in Eagan and Woodbury. Total retail sales volume this quarter was just over $130 million in the Minneapolis-St Paul metro. This is the second lowest quarterly total volume sales number in the last three years. Expectations are that the year will close with a below-average sales volume total for 2017. 494 62 169 SOUTHWEST MINNEAPOLIS CBD 100 394 35W 494 51 35E ST. PAUL CBD 55 36 SOUTHEAST 94 10 694

MARKET INSIGHTS > Adding customer pick-up services Vacancy 6.5% Major tenants including Target, Whole Foods, HyVee and Walmart are all launching curb-side pickup for online orders. The installation of several drive-up-only parking spots to existing parking is giving the brick-and-mortar stores a way into market share for online shopping with no delivery. Even more work by grocery retailers is being done to advance the online ordering process including an app that will automatically know when you are parked at a pick-up location and waiting for delivery. Potential hurdles include city zoning and lower parking ratios which may limit pickup options. 6.0% 5.5% 5.0$ 4.5% 4.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2013 2014 2015 2016 2017 Grocery s new biggest customer Absorption Current household cooking and shopping behavior is drastically different than previous generations. Families today are just not spending as much time shopping for, preparing and cooking food as they have in the past. There has been a rise in demand of pre-made food or pre-measured and boxed meals, common through online ordering services. Traditional grocers are taking note and adding these to their existing stores. HyVee has invested in a new product line called Meals to Go which are pre-measured meals for two that just need to be cooked according to the chef-made attached directions. Other grocers are launching similar programs with the goal to more broadly appeal to changing customer bases. 600,000 400,000 200,000 0 (200,000) (400,000) (600,000) (800,000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2013 2014 2015 2016 2017 Lease Activity TENANT PROPERTY ADDRESS CITY LEASED SF SUBMARKET Petco Southtown Shopping Center 7801 American Blvd W Bloomington 12,000 Southwest Pet Supplies Plus Burnhill Plaza 1200 County Road 42 W Burnsville 8,342 Southeast CoV Galleria Shops 3460 W 69th St Edina 8,000 Southwest Tri-Valley Opportunity Council, Inc. Continental Rogers 14020 14st Ave N Rogers 7,574 Northwest Angel's Learning Center 7658 Brooklyn Blvd 7658 Brooklyn Blvd Brooklyn Park 7,414 Northwest Anthony Auto 533-537 37th Ave NE 533 University NE Columbia Heights 6,400 Northeast Anytime Fitness Lime Retail 2904 Lyndale Ave S Minneapolis 6,351 Southwest Exit Realty 20765 Holyoke Ave 20765 208th St W Lakeville 6,313 Southeast St. Croix Pediatric Dentistry Blaine Crossing 1351 113th Ave NE Blaine 6,046 Northeast Hopcat The Nic on 5th 465 S 5th St Minneapolis 5,765 Minneapolis CBD Crossroads Optometric 16250 Duluth Ave SE 16250 Eagle Creek Ave SE Prior Lake 5,387 Southwest Patina Prairie Village Shopping Center 16500 78th St Eden Prairie 5,250 Southwest

Investor mindset shift Investors are continuing to evolve how retail opportunities are viewed. In the past, investors were interested in any building that had good, brand name tenants. As retail evolves, some tenants which were once thought of as safe bets are now struggling. If these tenants exit the market or close, the investor is then left holding a poor asset. Today, in order to plan for contingencies and backfilling strategies, investors are getting smarter and focusing on properties that also have strong location, access and visibility. Top tenants will still drive the most interest, but investors are putting more thought into the physical real estate than previously before. More private education options coming to a retail center near you? Traditional retail buildings with larger vacancies could see non-traditional users like charter schools looking more intently at their space. According to the Minnesota Department of Education, in the last 5 years traditional school district enrollment has increased by 2% while charter school enrollment has increased by 36%. All these new and quickly growing charter schools need more space. Retail spaces serve as viable options as these buildings already have the access and proximity to population that charter schools would look for in site selection. Retail Market Statistics -66,800 sf YTD NET ABSORPTION 655k sf YTD COMPLETIONS 6.4% VACANCY RATE 915K sf UNDER CONSTRUCTION Sales Activity PROPERTY ADDRESS CITY BUYER SELLER PRICE $/PSF SF Sears 12431 Wayzata Blvd Minnetonka GGP (Portfolio Purchase) Seritage Growth Properties $50,466,231 $246 204,866 Cabela's 8400 Hudson Rd Woodbury STORE Capital (REIT) Bass Pro Shops $26,295,445 Herbergers - Roseville Mapleridge Shopping Center Rosemount Crossing Central Plaza Shopping Center 600 Rosedale Shopping Center 2515 White Bear Ave N 14903-14995 Robert Trl S 725 45th Ave NE Saint Paul Prime Property Fund Bon-Ton Stores $18,900,000 Saint Paul Slate Retail REIT StarPointe Properties $13,400,000 Rosemount Pacific West Land Mark Reiling $7,604,067 Columbia Heights Central Crossing 1400 1st Ave E Cambridge Corning Cos Regal Brooklyn Center Stadium 20 Maple Ridge Center CVS Pharmacy Lafayette Square 6420 N Camden Ave Minneapolis 9700 N 63rd Ave N 600 Central Ave E 433 Mendota Rd E Maple Grove Saint Michael West Saint Paul 242 Cleveland Avenue S 242 Cleveland Ave S Saint Paul $281 $126 $117 $180 93,670 149,908 114,681 42,268 Baceline Investments Paster Properties $7,156,610 $87 82,478 Topgolf Brooklyn Center LLC Ted Glasrud Associates Clear Choice Property Mgmt LLC Chandler & Chandler LLC Oppidan Investment Co $6,875,000 $216 31,900 Regal Cinemas Inc $5,678,876 $67 84,430 MMS Properties LLC $4,300,000 $3,950,000 Lafayette Square LP $3,000,000 $157 $294 $107 27,425 13,431 28,012 Pro Pharmacy Inc $2,850,000 $94 30,460

Spotlight Trend: Retail Openings Outpacing Closings It makes for an easy headline whenever there is a big-name retail tenant closing. It focuses on the name recognition of the tenant and backs up the premise that e-commerce is killing traditional retail. The story that brick-and-mortar is dying is not only premature, it is also inaccurate. The reality is that there are far more openings than closings, they just don't make the headlines. This year, IHL Group reported that retail chains and restaurants are opening 4,000 more units in the US than are closing. That gap is expected to continue to grow next year with an excess of 5,000 more opening nationally than closings. Unsurprisingly, name brands of national tenants closing get more attention than smaller or new brands entering a market. We are going through a time when specialized retailers are gaining momentum over catch-all retailers and department stores. What this is leaving us with is more, smaller retailers versus a few large big-box and Regional Mall-anchoring retailers. The total market share for e-commerce is still below 10% of all retail spending in the United States. So while that sector of the retail pie may be increasing, it is not destroying retailers that are being proactive in evolving their business. Evolving goes both ways, with many online retailers moving into brick-andmortar locations. Moving from clicks to bricks. Clothing stores Athleta, Bonobos, Boston Proper, Fabletics and Frank & Oak are all opening stores. So are accessory retailers like Warby Parker, Birchbox and BaubleBar who are moving to physical locations to complement their online presence. Retail is shifting, but all the data indicates the type of retailer is what is changing, rather that the demand for physical retail space. Headlines of well-known company closures certainly seems to paint a negative picture for brick-and-mortar stores. In reality, the picture is not as bleak for the overall retail market as it may appear. Janet Olson Associate Retail Brokerage Direct +1 952 897 7751 janet.olson@colliers.com MARKET INSIGHTS > (cont.) Millennials are moving target By population, the largest age generation, and soon to be the largest by purchasing power is the Millennial generation. Appealing to consumers from the Millennial generation is key to long term retail sustainability. Generally considered people born between 1980 and 2000, as they age, the millennial generation is a changing demographic. That gap today means millennials are age 17-37. Spending habits will change as more enter home-owning or family creating ages - which is already being seen. Optics seem to still view the millennial generation as very young, but in reality their buying power has matured into more substantial life purchases. Growing too quickly? Retail is in the midst of an expansion period with many retailers taking on aggressive growth plans. One driver of this growth is private equity investment. Investors want to push for market share, a larger top line income and brand recognition to boost overall valuation of the company. Competing retailers are feeling pressure to keep up with the industry and are implementing plans for the fast track as well. The worry is that the balance sheet of some of these retailers could be in worse shape because the push for more locations over-extends finances and may be unsustainable. Landlords would be wise to educate themselves about new or growing retailer sales as much as possible.

Minneapolis-St. Paul Retail Trade Areas 94 Coon Rapids Blaine YTD ABSORPTION 5 Largest Retail Trade Areas Maple Grove Northtown 35W Plymouth 494 Ridgedale 169 West End Brooklyn Center 394 694 Minneapolis CBD 51 Rosedale 35E Maplewood 36 94 694 Stillwater SOUTHDALE -33,118 sf ARBOR LAKES 34,621 sf Shakopee Eden Prairie 62 100 Southdale 35W 494 35E Eagan St. Paul CBD South Robert Cottage Grove Woodbury 10 WOODBURY 15,104 sf ROSEDALE -102,300 sf Burnsville Center Apple Valley 55 BURNSVILLE 39,670 sf Data Summary TRADE AREA SF VACANT %VACANT Q3 2017 ABSORPTION YTD ABSORPTION Apple Valley 2,054,496 105,434 5.10% -9,266-2,405 Blaine 1,746,553 135,989 7.80% -61,470-60,436 Brooklyn Center 1,061,525 87,511 8.20% 0-19,383 Burnsville 3,020,067 88,125 2.90% 38,007 39,670 Coon Rapids 3,074,541 265,432 8.60% -55,303-159,408 Cottage Grove 1,198,091 146,093 12.20% -10,132-2,947 Eagan 1,578,281 29,502 1.90% -5,109 12,304 Eden Prairie 2,472,321 348,123 14.10% -65,868-67,14 Maple Grove- Arbor Lakes 5,037,849 74,999 1.50% 2,155 34,621 Maplewood 1,875,383 121,420 6.50% 3,368 25,984 Northtown 2,049,446 249,531 12.20% -11,770 39,183 Plymouth 1,976,620 0 0.00% 2,558 3,993 Ridgedale 1,399,376 51,202 3.70% 17,310-2,472 Rosedale 3,216,932 198,605 6.20% -68,517-102,300 Shakopee 2,480,645 103,924 4.20% -6,099 652 South Robert 2,204,097 219,679 10.00% 9,160 5,488 Southdale 5,259,323 213,118 4.10% -63,211-33,118 Stillwater 2,549,847 64,506 2.50% 8,881-7,075 West End 1,248,008 78,475 6.30% -4,159-12,26 Woodbury 3,371,769 68,861 2.00% -10,935 15,104

Tenant Tracker Expanding New or Looking

Market Statistics SUBMARKET # OF BUILDINGS BUILDING SF DIRECT AVAILABLE SF DIRECT VACANT SF % DIRECT VACANT W/SUBLEASE VACANT SF % VACANT W/SUBLEASE ASKING RENTAL RATES LOW HIGH AVG AVERAGE OPERATING YTD ABSORPTION ABSORPTION Minneapolis CBD CBD of Minneapolis 10 960,984 145,058 134,394 13.99% 134,394 13.99% $17.00 $35.00 $26.00 $13.46 44,078 34,132 Totals: 10 960,984 145,058 134,394 13.99% 134,394 13.99% $17.00 $35.00 $26.00 $13.46 44,078 34,132 Northeast Community Center 19 4,187,322 259,880 217,191 5.19% 217,191 5.19% $13.33 $13.33 N/A $7.72-55,867-51,711 Neighborhood Center 78 5,142,265 395,114 358,278 6.97% 380,089 7.39% $12.77 $14.35 $13.95 $7.12 5,142-23,273 Regional Center 5 2,914,077 106,345 106,345 3.65% 106,345 3.65% N/A N/A N/A N/A -5,139-10,362 Totals: 102 12,243,664 761,339 681,814 5.57% 703,625 5.75% $12.81 $14.27 $13.95 $7.25-55,864-85,346 Northwest Community Center 46 5,350,901 338,296 305,819 5.72% 305,819 5.72% $26.50 $30.50 $28.50 $7.39-63,736 34,489 Neighborhood Center 127 9,050,666 783,405 857,763 9.48% 862,730 9.53% $16.05 $16.96 $16.09 $7.33-74,984-153,792 Outlet Mall 1 430,000 0 0 0.0% 0 0.0% N/A N/A N/A N/A 0 0 Regional Center 20 3,827,114 187,983 170,998 4.47% 170,998 4.47% $23.65 $24.32 $21.48 $10.94 4,830-91,342 Totals: 194 18,658,681 1,309,684 1,334,580 7.15% 1,339,547 7.18% $17.46 $18.55 $17.36 $7.46-133,890-210,645 Southeast Community Center 33 4,810,163 259,765 280,722 5.84% 325,737 6.77% $17.08 $22.00 $19.54 $7.58-7,944 63,503 Neighborhood Center 112 7,422,994 791,437 666,623 8.98% 666,623 8.98% $14.74 $15.62 $15.56 $7.13 59,663 116,407 Outlet Mall 1 114,701 4,968 4,968 4.33% 4,968 4.33% N/A N/A N/A N/A -4,968-4,968 Regional Center 11 6,015,202 47,639 83,222 1.38% 83,222 1.38% N/A N/A N/A $9.65-3,266 961 Totals: 157 18,363,060 1,103,809 1,035,535 5.64% 1,080,550 5.88% $15.00 $16.33 $16.04 $7.28 43,485 175,903 Southwest Community Center 21 3,550,912 193,761 181,872 5.12% 181,872 5.12% $13.00 $14.00 $13.50 $10.59-12,278-11,075 Neighborhood Center 94 6,836,669 484,388 430,240 6.29% 439,540 6.43% $18.96 $20.31 $18.76 $10.09 27,057 111,073 Regional Center 7 5,237,679 192,652 390,613 7.46% 390,613 7.46% N/A N/A N/A $12.62-65,665-80,856 Totals: 122 15,625,260 870,801 1,002,725 6.42% 1,012,025 6.48% $18.42 $19.74 $18.24 $10.27-50,886 19,142 Total All Markets CBD of Minneapolis 10 960,984 145,058 134,394 13.99% 134,394 13.99% $17.00 $35.00 $26.00 $13.46 44,078 34,132 Community Center 119 17,899,298 1,051,702 985,604 5.51% 1,030,619 5.76% $17.95 $21.04 $20.38 $8.06-139,825 35,206 Neighborhood Center 411 28,452,594 2,454,344 2,312,904 8.13% 2,348,982 8.26% $15.90 $17.00 $16.26 $7.94 16,878 50,415 Outlet Mall 2 544,701 4,968 4,968 0.91% 4,968 0.91% N/A N/A N/A N/A -4,968-4,968 Regional Center 43 17,994,072 534,619 751,178 4.17% 751,178 4.17% $23.65 $24.32 $21.48 $11.07-69,240-181,599 Totals: 585 65,851,649 4,190,691 4,189,048 6.36% 4,270,141 6.48% $16.33 $17.77 $16.84 $8.22-153,077-66,814

403 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 86 EMEA: 111 BROKERAGE SERVICES CONTACT: William M. Wardwell SIOR Executive Vice President Brokerage Minneapolis-St. Paul +1 952 897 7828 bill.wardwell@colliers.com Colliers International Minneapolis-St. Paul 4350 Baker Road, Suite 400 Minnetonka, MN 55343 colliers.com/msp $2.6 billion in annual revenue SUBSCRIBE TO OUR BLOG 2 billion square feet under management 16,000 professionals and staff Copyright 2017 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.