Southeastern Wisconsin Industrial Market Mid-Year Report and Statistics

Southeastern Wisconsin
2012 Industrial Market Report

Mid-Year Statistics & Market Report
Published July 2012

626 E. Wisconsin Avenue, Suite 1020
Milwaukee, Wisconsin 53202
Phone: (414) 271-6100
Fax: (414) 271-5125
Info@dickmanrealestate.com
www.dickmanrealestate.com


TABLE OF CONTENTS

I. 2012 Quarterly Vacancy Rates......…………………………………………....…...................… Page 2
Includes: Current Inventory, Q4 2011 vs. Q1 Q2 2012 Vacancy Rates
YTD Absorption

II. 2012 Quarter 1 Quarter 2 Recap..............................………………………………………… Page 3
Includes: 2011 vs. 2012 Vacancy by County Comparison

III. 2012 Mid-Year Report..........……………………………………………………………………… Page 4

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626 E. Wisconsin Ave, Suite 1020
Phone: (414) 271-6100
Fax: (414) 271-5125

This information has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it.


2012 Quarterly Vacancy Rates and Absorption

County/Submarket Inventory Total Vacancy Vacancy Vacancy YTD Net
(SF) Vacant Q4 2011 Q1 2012 Q2 2012 Absorption
(SF) (%) (%) (%) (SF)*
Milwaukee Downtown 11,917,628 1,518,198 13.7% 13.1% 12.7% 116,182
North Central 9,696,341 1,088,752 11.5% 11.4% 11.2% 28,396
North Shore 7,112,212 1,139,582 11.8% 14.9% 16.0% -302,714
Northwest 18,801,314 1,617,313 9.5% 9.6% 8.6% 281,879
South 23,653,635 1,854,853 8.1% 7.2% 7.6% 223,996
South Central 10,494,066 1,144,834 11.2% 10.6% 10.9% 30,309
West 11,884,465 1,090,405 10.1% 9.3% 9.1% 116,486
Milwaukee Total 93,559,661 9,453,937 10.3% 10.1% 10.0% 494,534
Waukesha Northeast 21,053,928 1,095,624 6.1% 5.4% 5.0% 278,906
Northwest 17,977,118 840,585 4.6% 4.3% 4.6% 152,599
Southeast 14,634,206 770,970 5.8% 5.6% 5.3% 155,917
Southwest 15,935,685 855,626 4.5% 5.0% 5.4% 19,369
Waukesha Total 69,600,937 3,562,805 5.3% 5.1% 5.1% 606,791
Kenosha 21,070,744 2,227,516 10.8% 10.7% 10.6% 43,076
Ozaukee 11,377,633 1,324,996 13.1% 11.1% 11.6% 165,890
Racine 28,561,784 883,701 3.5% 3.0% 3.1% 127,447
Sheboygan 13,750,506 625,000 6.5% 4.5% 4.5% 266,314
Walworth 8,824,083 375,798 4.2% 4.5% 4.3% -3,815
Washington 18,844,005 1,023,499 5.4% 5.5% 5.3% 41,165
Grand Total 265,589,353 19,477,252 7.7% 7.3% 7.3% 1,741,402
Data Source: Xceligent

Terminology
Inventory - The total square feet of all single and multi-tenant industrial properties above 10,000 square feet.
Vacant SF - Space that is available and not currently occupied.

Vacancy Rate - Percentage of space in the market that is not currently occupied
(Vacant square feet divided by inventory).
Absorption - The amount of rentable space which is filled. Net absorption is equal to the amount occupied at
the end of the period minus the amount occupied at the beginning of the period, taking into consideration space
vacated during the period.

* YTD Net Absorption (SF) is the net change in absorption between Q4 2011 and Q2 2012.

Phone: (414) 271-6100
Fax: (414) 271-5125
www.dickmanrealestate.com Page 2


2012 Quarter 1-Quarter 2 Recap

During the first two quarters of 2012, the We have noted several factors contributing to
Southeastern Wisconsin industrial real estate market the positive net change. For the first time since
experienced positive net absorption in the amount the recession hit, we are beginning to see
of 1,741,402 Sq. Ft. Now that the quarter has come competitive bidding situations on both lease and
to an end, we are pleased to announce two straight sale transactions. This is especially true in certain
years without a quarter of negative absorption. As a strong submarkets, specifically North and Central
result of the positive absorption the vacancy rate has Waukesha County west of I-45. For those of you
dropped from 7.7% (Q4 ’11) to 7.3% (Q2 ’12). looking ahead, we believe the growing shortage of
space in some of these municipalities make them
good candidates for speculative development.
2011 vs 2012 County by County Comparison In addition to the
14.0%
area mentioned in
2011 Q4
2012 Update
12.0% 2012 Q1
Waukesha County, Compared to Q4 2011:
2012 Q2
Kenosha and some
10.0% areas of Racine Vacancy
County remain
8.0%
prime candidates
6.0% for additional DOWN
development.
4.0%
In fact, plans were just Net Absorption
2.0%
released by Milwaukee-
based Zilber Property
Group to build between POSITIVE
a 99,000-176,000
Seven of the eight counties in our market area square foot industrial Lease Rates
experienced a positive trend in vacancy rates. building in Pleasant
For Sheboygan County, the vacancy rate dropped Prairie. Construction
from 6.5% (Q4 ’11) to 4.5% (Q2 ’12).This positive could begin by the end STABLE
net change can largely be attributed to the recent of the year and will take
purchase of a 250,000 square foot building just less than a year to Transactions
on Cambridge Avenue. The buyer, American build. This could mean
Orthodontics Corporation, plans to consolidate its more of these projects
existing locations and expand into the building, which are right around the
UP
had been vacant since April 2010. In other market corner.
news, Integrated Merchandising Systems (IMS)
just leased 312,500 Sq. Ft. in Kenosha. Walworth In our 2011 recap,
County, the only of the eight to experience negative we noted lease rates
net absorption, saw only about 4,000 Sq. Ft. become stabilizing for the first time in years. Not only has this
vacant. Waukesha had the highest absorption rate trend continued in 2012 but sales prices have also
with 606,791 Sq. Ft. and Milwaukee was not far begun to stabilize, with building values increasing in
behind with 494,534 Sq. Ft. value from the bottom.

Phone: (414) 271-6100
Fax: (414) 271-5125
www.dickmanrealestate.com Page 3


2012 Mid-Year Report

With leasing activity on the rise late into the second quarter, we expect this trend to carry over into the third
and fourth quarters of this year. The stabilization of lease rates has landlords thinking twice about offering
free rent. Aggressive tenant improvement packages can still be found but we anticipate fewer concessions by
landlords now that the supply of space has tightened and demand has generally grown.

In general, the demand for manufacturing and warehouse space is strong, while the demand for flex properties
remains weak but stable (examples of flex properties include
contractors, technology centers, incubators, etc.). We anticipate
this trend to continue until the excess supply of flex space comes
off the market.

One factor we believe could make a difference in the near future is
a change in lending habits by banks. While our local institutions are
interested in lending to users, they remain stringent when it comes
to investment lending. Oftentimes, a down payment of 30% or more
is required in an investment scenario.

The upcoming construction of the Zoo interchange has created
a short-term demand for facilities in the central/west Milwaukee
submarkets. This primarily includes contractors and outdoor
storage users. For those of you worried about a potential
inconvenience, the map provided gives some brief details regarding
specific dates and locations who may require additional space until
the project ends in 2018. Truck routes will be affected for years
until the project is complete. (Source: Milwaukee Business Journal)

While the local elections for Governor settled uncertainty for
businesses, we are now hearing businesses express apprehension
about the upcoming presidential election. As many of you know
firsthand, election years are stressful and in times of uncertainty
people are less likely to take chances—this includes making
large purchases such as a new building. Still we see large-scale
deals like those in Sheboygan and Kenosha described above.
In addition, the housing sector is showing increasing strength,
with both existing sales and new housing starts showing gains.
While national employment figures remain anemic and a level of
uncertainty remains at the macro-economic and international political levels, Southeast Wisconsin continues
to benefit from growth and productivity gains in the manufacturing sector and supporting industries. The
Southeast Wisconsin industrial real estate market will benefit from these contributing factors.

Based on the available data and our experience in the marketplace we anticipate a strong finish to the year,
both in sales and leasing of industrial product. Look for the decreasing supply to affect sale prices, lease rates,
landlord concessions and potentially even new development before 2013.

Phone: (414) 271-6100
Fax: (414) 271-5125

Page 4

626 E. Wisconsin Avenue, Suite 1020
Phone: (414) 271-6100
Fax: (414) 271-5125
Info@dickmanrealestate.com

Southeastern Wisconsin Industrial Market Mid-Year Report and Statistics

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