2012 Mid Year Industrial Market Report

626 E. Wisconsin Avenue, Suite 1020Milwaukee, Wisconsin 53202

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

[email protected]

Mid-Year Statistics & Market ReportPublished July 2012

Southeastern Wisconsin2012 Industrial Market Report

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.

626 E. Wisconsin Ave, Suite 1020Milwaukee, Wisconsin 53202Phone: (414) 271-6100Fax: (414) 271-5125www.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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County/Submarket Inventory (SF)

Total Vacant

(SF)

VacancyQ4 2011

(%)

Vacancy Q1 2012

(%)

Vacancy Q2 2012

(%)

YTD Net Absorption

(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% 28,396North Shore 7,112,212 1,139,582 11.8% 14.9% 16.0% -302,714Northwest 18,801,314 1,617,313 9.5% 9.6% 8.6% 281,879South 23,653,635 1,854,853 8.1% 7.2% 7.6% 223,996South Central 10,494,066 1,144,834 11.2% 10.6% 10.9% 30,309West 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% 494,534Waukesha 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% 152,599Southeast 14,634,206 770,970 5.8% 5.6% 5.3% 155,917Southwest 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% 606,791Kenosha 21,070,744 2,227,516 10.8% 10.7% 10.6% 43,076Ozaukee 11,377,633 1,324,996 13.1% 11.1% 11.6% 165,890Racine 28,561,784 883,701 3.5% 3.0% 3.1% 127,447Sheboygan 13,750,506 625,000 6.5% 4.5% 4.5% 266,314Walworth 8,824,083 375,798 4.2% 4.5% 4.3% -3,815Washington 18,844,005 1,023,499 5.4% 5.5% 5.3% 41,165Grand Total 265,589,353 19,477,252 7.7% 7.3% 7.3% 1,741,402

Data Source: Xceligent

TerminologyInventory - 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.

2012 Quarterly Vacancy Rates and Absorption

Page 2

2012 Quarter 1-Quarter 2 Recap

During the first two quarters of 2012, the Southeastern Wisconsin industrial real estate market experienced positive net absorption in the amount of 1,741,402 Sq. Ft. Now that the quarter has come to an end, we are pleased to announce two straight years without a quarter of negative absorption. As a result of the positive absorption the vacancy rate has dropped from 7.7% (Q4 ’11) to 7.3% (Q2 ’12).

Seven of the eight counties in our market area experienced a positive trend in vacancy rates. For Sheboygan County, the vacancy rate dropped from 6.5% (Q4 ’11) to 4.5% (Q2 ’12).This positive net change can largely be attributed to the recent purchase of a 250,000 square foot building on Cambridge Avenue. The buyer, American Orthodontics Corporation, plans to consolidate its existing locations and expand into the building, which had been vacant since April 2010. In other market news, Integrated Merchandising Systems (IMS) just leased 312,500 Sq. Ft. in Kenosha. Walworth County, the only of the eight to experience negative net absorption, saw only about 4,000 Sq. Ft. become vacant. Waukesha had the highest absorption rate with 606,791 Sq. Ft. and Milwaukee was not far behind with 494,534 Sq. Ft.

We have noted several factors contributing to the positive net change. For the first time since the recession hit, we are beginning to see competitive bidding situations on both lease and sale transactions. This is especially true in certain strong submarkets, specifically North and Central Waukesha County west of I-45. For those of you looking ahead, we believe the growing shortage of space in some of these municipalities make them good candidates for speculative development. In addition to the area mentioned in Waukesha County, Kenosha and some areas of Racine County remain prime candidates for additional development. In fact, plans were just released by Milwaukee-based Zilber Property Group to build between a 99,000-176,000 square foot industrial building in Pleasant Prairie. Construction could begin by the end of the year and will take just less than a year to build. This could mean more of these projects are right around the corner.

In our 2011 recap, we noted lease rates stabilizing for the first time in years. Not only has this trend continued in 2012 but sales prices have also begun to stabilize, with building values increasing in value from the bottom.




2012 UpdateCompared to Q4 2011:

Vacancy

DOWN

Net Absorption

POSITIVE

Lease Rates

STABLE

Transactions

UP

Page 3

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2011 vs 2012 County by County Comparison

2011 Q4

2012 Q1

2012 Q2


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.




Page 4


626 E. Wisconsin Avenue, Suite 1020Milwaukee, Wisconsin 53202

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

[email protected]

Documents

2012 Mid Year Industrial Market Report