Bug: Model Builder allows selecting a newly created output location, but does not allow it to be used
If Windows Explorer is used to create a new directory while creating a model, Model Builder will allow selecting the folder for an output location, but will not allow it to be used.
This is a known issue.
Select one of the following workarounds.
- Use Windows Explorer to create the new directory, before creating the model.
- Create the new folder using ArcToolbox > Data Management Tools > Workspace. This provides tools to create new workspaces.