7.0 EDSR 03-12-2007 - Laserfiche WebLink

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Page 1 of 2 Print this Page ~i f t t k. ~ ' _ ~'~ , ~ i ~~~v~~ Is the Market Ready for Speculative Development and the Pricing It Requires? • Absorption tripled from first half but is still below record-setting 2005 figures • Users taking more time to consider space options • As the market tightens, users have fewer options and landlords will push rental rates on existing buildings The Twin Cities industrial market remains strop evidenced b diminishin I I ~I 11 ~ II ^ i ~ ilk g ( g, y Y gg ~~ ~ ~ ~ ~~ I~~~ ~I~ °~ ;~~gl~lr Illy iluu ~f~~~l~~ ~~ concessions fewer user-buildin sales which means more users are sta m i in the multi-tenant leasing market), positive absorption and decreasing " ~~~ vacancies. While it has been a tenant's market for several years, the ~ pendulum swinging in the landlord's favor, as strong demand for space continues and supply decreases. Market Demand Remains Strong Although demand for space could not keep up with 2005's staggering pace of 3.8 million square feet of absorption, the market boasted a strong finish at year-end 2006 with 2.2 million square feet. This robust activity helped push down overall vacancy to 13%, the lowest since 2000. Another 2.4 million square feet of absorption is projected for 2007, which will further decrease vacancy. At year end, the Southwest reported the lowest vacancy at 10.5%, with 419,297 sq. ft. of absorption. Many users continue to eye this submarket. Shakopee, which struggles with ahalf-million square feet of vacant space, is expected to see stronger leasing activity as space in Eden Prairie, Edina and Bloomington fills up. The Northwest reported 10.7% vacancy and 689,235 sq. ft. of absorption at year end. Strong activity is expected to continue in 2007. A handful of larger technology companies, for example, are expected to be pushed out into the leasing market because they're out of space. At year end, the Southeast reported 13.6% vacancy and absorbed 403,830 sq. ft. The Northeast reported 16.2% vacancy and absorbed 649,737 sq. ft.-the most of any submarket. Much of the activity in this submarket in 2006 came from internal growth. Shrinking Supply of Larger Blocks of Space Bulk warehouse flexed its muscles, boasting 986,539 sq. ft. of absorption in the second half, which pushed vacancy down to 15%. A lack of functional bulk exists across all submarkets, with only approximately 35 options larger than 50,000 sq. ft. More than half of the Northeast's absorption was in bulk deals, including U.S. Tire & Exhaust and Diversified Graphics signing hefty leases at the Roseville Distribution Center. Nearly 100% of absorption in the Southwest was in bulk, including Anchor Glass Container and Murphy Warehouse combining to lease 300,000 sq. ft. at Eagle Creek Industrial Park in Savage. A drought of bulk product is expected in the Southeast, which could result in some less-functional buildings landing leases. Office showroom reported the lowest vacancy at 11.9%, with few available options larger than 25,000 sq. ft. This tightening led to speculative development, as nine showroom buildings opened in 2006 and several more are underway or planned. Developers with solid locations in the western suburbs are in a good position to deliver higher-end, speculative showroom in 2007-08. Office warehouse reported 12.0% vacancy overall and is particularly tight in the Northwest, Southwest and Southeast, at 8.7%, 9.4% and 9.9%, respectively. Concessions Dwindling Despite healthy demand, quoted rental rates remained relatively flat at $8.10 (office) and $4.48 (warehouse). However, concessions are evaporating across all submarkets. Landlords whose portfolios are faring well are offering fewer concessions and http://outlook.uproperties.com/PagePrinter. aspx?InstanceID=983 d899c-6805-4988-b~0-41... 3/7/2007