Southeastern Wisconsin 2011 Industrial Market Report...2010. (Source: Xceligent/CARW). Milwaukee and...

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

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

[email protected]

Year-End Statistics & Market ReportPublished February 2012

Southeastern Wisconsin2011 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. Market Trends & Forecast ………………………………………………………………….......... Page 3 Includes: 2011 Recap, 2012 Forecast

II. 2010 vs 2011 Vacancy Rates vs. Absorption......…………………………………………....…… Page 5 Includes: Current Inventory, Q4 2010 vs. Q4 2011 Vacancy Rates & Absorption

III. 2011 Quarterly Vacancy Rates..............................……………………………………………… Page 6 Includes: Current Inventory, 2011 Vacancy Rates

IV. 2011 Market Statistics..........……………………………………………………………………… Page 7 Includes: 2010 vs. 2011 Vacancy by County Comparison, Quarterly Absorption vs. Vacancy, & Quarterly Vacancy vs. Asking Lease Rates

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2011 Recap. Southeastern Wisconsin continued to experience positive quarterly absorption for a consecutive sixth quarter with nearly 270,218 square feet absorbed in the 4th quarter 2011 and 3,073,242 square feet absorbed in 2011. As a result of the positive absorption the vacancy rate has dropped to 7.5% in the 4th quarter 2011 from 8.4% in the 4th quarter 2010. (Source: Xceligent/CARW).

Milwaukee and Waukesha counties were responsible for the positive absorption throughout 2011 accounting for nearly 73% of the 3,073,242 square feet absorbed during the period. Kenosha and Racine counties both experienced positive absorption of 33,955 square feet and 533,945 square feet respectively. While impressive, this data is less substantial than previous quarters that we have analyzed. Traditionally, Racine and Kenosha counties compete for tenants that are crossing over from the Illinois border and will likely be the sites of the next speculative or build-to-suit developments in Southeastern Wisconsin.

Leasing and sales activity was substantial over the last two quarters of 2011, and we expect these positive trends to carry over into 2012. We have noted that quality industrial space is being depleted in many of the more popular submarkets south of I-94 and west of I-45. Natural tensions between quality supply and increasing demand are causing a stabilization of lease rates that we have not seen for years (please refer to Figure 3 on Page 7).

We believe this pent up demand and dwindling supply of quality product will result in a number of build-to-suit projects

over the next twelve months and perhaps a resurgence of speculative projects. Zilber Property Group announced July 2011 their most recent industrial speculative building at LakeView Corporate Park in Pleasant Prairie. The 60,256 square foot single or multi-tenant facility is expected to be completed by the end of this year. HSA Commercial Inc recently signed a 63,838 square foot lease at its park in Mount Pleasant creating the potential for a new building to satisfy demand in 2012.

Since the second quarter 2011, we have observed a significant increase in the velocity of property sales and completed lease transactions for industrial product throughout the Southeastern Wisconsin region. Below is a sample of what we have seen over the past several months.




Milwaukee Industrial Market: All Signs Positive

Building Address City Building Size Building Price Price/SF User or Investment1 6101 N. 64th Street Milwaukee 374,736 SF $3,300,000 $8.80/SF Investment2 1230 Cheyenne Avenue Grafton 86,000 SF $2,400,000 $27.90/SF Investment3 1900 W. Cornell Street Milwaukee 243,056 SF $4,365,000 $17.81/SF User4 11000 W. Heather Avenue Milwaukee 82,907 SF $3,450,000 $41.61/SF User5 11225 W. Heather Avenue Milwaukee 95,500 SF $3,750,000 $39.26/SF Investment6 690 W. Oakland Avenue Port Washington 182,000 SF $2,150,000 $11.81/SF User7 N89 W14700 Patrita Drive Men. Falls 160,000 SF $5,300,000 $33.12/SF User8 607 E. Polk Street Milwaukee 141,234 SF $3,750,000 $26.55/SF User - Teardown9 6575-6693 N. Sidney Pl Glendale 104,400 SF $3,635,000 $34.81/SF Investment

2011 RecapCompared to 2010:

Vacancy

DOWN

Net Absorption

POSITIVE

Lease Rates

STABLE

Transactions

INCHING UP

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PropertiesSample Completed Sale & Lease Transactions

2012 Forecast. The industrial real estate market for 2012 looks positive. We observed numerous indicators such as decreased vacancy and lease rate and pricing stabilization

across the industrial sector over the past year. Despite the positive news, absorption in Q4 2011 was 270,218 square feet compared to 1,150,904 square feet in Q3 2011. We expect this lower rate of positive absorption to continue well into 2012. The rate of deal velocity has slowed for a variety of factors, including uncertainty locally (recalls), nationally (2012 Presidential election), and internationally (oil prices, Euro zone, Middle East). Coupled with this uncertainty is an unavailability of quality product in many submarkets. Companies that are geographically driven will find fewer options, conflicting with the general expectation among users for a “great deal”. Product inventory remains high for warehouse and flex space, but generally low for manufacturing facilities in the region.

Banks will continue to play a part of the industrial real estate market as they dispose of troubled properties. The properties sold by banks have played a dampening effect on sales comparables, as the ultimate sale price is more correlated to the bank’s position in the property than its true “market value”. On the lending side, we have found banks more eager to participate in user-based transactions, often coupled with SBA financing or other incentive packages from the government.

Leasing has played an important part in the industrial real estate market recovery for southeastern Wisconsin. Ultimately stabilized lease rates can equate to a more stable property value. Part of the problem we saw over the past several years was higher vacancy and plummeting lease rates. Creditors utilize these factors to determine property value. With lease rates stabilizing in our region, property values will experience a similar result in 2012. Leasing

packages for tenants will also continue to become less aggressive. Previously, it was common to receive several months of free rent corresponding to the term of the lease. In the industrial market, free rent is still prevalent but to a lesser degree. Landlords prefer to give free rent in lieu of a lower lease rate in an effort to hold the line on property values.

Based on the available data and our experience in the marketplace we anticipate the year will have a strong volume of sales and leasing activity for industrial product. While challenges will remain in the Milwaukee marketplace the shifting supply and demand curves will have a notable impact on pricing and potential new development in the short term.




2012 ForecastCompared to 2011:

Vacancy

INCHING DOWN

Net Absorption

POSITIVE

Lease Rates

STABLE

Transactions

INCHING UP

The Industrial TOP 10 of 2011In no order of importance!

Here are some highlights of the industrial real estate market from 2011:

1. Highest Vacancy Rate: 12.2% in Ozaukee County2. Lowest Vacancy Rate: 3.6% in Racine County3. Highest YTD Absorption: 1,297,083 Sq. Ft. in

Milwaukee County4. Lowest YTD Absorption: -301,500 Sq. Ft. in

Sheboygan County5. Milwaukee – the European manufacturing

destination? We continue to see European firms take advantage of the attractive real estate pricing and labor pool in southeast Wisconsin.

6. Progress on the Kenosha Chrysler Plant – After much uncertainty, it appears the City of Kenosha will be taking over ownership of the property, potentially for re-development.

7. Only 11.5 Acres left (out of 56.5 Acres) in the Menomonee Valley.

8. Cap rates sank to their lowest levels in years providing some relief to industrial investors.

9. All 2011 regional manufacturing indices registered growth, but new orders contracting.

10. Positive absorption of 400,000 SF+ every quarter for 15+ months.




County/Submarket Inventory (SF)

Total Vacant

(SF)

Vacancy Q4 2010

(%)

Vacancy Q4 2011

(%)

Absorption YTD 2010

(SF)

Absorption YTD 2011

(SF)Milwaukee Downtown 12,040,175 1,615,925 12.5% 13.4% -72,565 -110,811

North Central 10,759,078 1,124,848 13.8% 10.5% 26,574 382,731North Shore 7,604,171 993,990 15.0% 12.8% -97,426 192,647Northwest 18,593,846 1,527,422 10.6% 8.2% 86,975 434,679South 23,587,477 1,964,487 10.2% 7.9% 13,155 509,834South Central 10,288,571 1,240,743 11.9% 12.1% 63,120 -19,052West 12,408,380 1,171,276 9.7% 9.4% 78,700 161,800

Milwaukee Total 95,281,698 9,638,691 11.5% 10.0% 98,533 1,297,083Waukesha Northeast 20,972,233 1,093,520 6.0% 5.2% -46,711 364,983

Northwest 17,789,574 823,643 7.2% 4.6% 136,434 503,658Southeast 14,834,449 883,714 5.5% 5.7% 17,124 49,883Southwest 15,796,684 729,493 4.5% 4.6% 41,751 29,967

Waukesha Total 69,392,940 3,530,370 5.8% 5.0% 148,598 948.491Ozaukee 12,865,672 1,563,826 13.1% 12.2% 5,230 118,439Racine 28,565,269 1,040,091 4.9% 3.6% 684,586 533,945Sheboygan 12,760,606 826,314 4.1% 6.5% 0 -301,500Kenosha 21,007,862 2,262,457 10.7% 10.7% 215,607 33,955Walworth 8,789,087 377,886 7.3% 4.3% 6,680 261,617Washington 19,345,294 1,073,246 6.0% 5.3% 265,453 181,212Grand Total 268,008,428 20,312,881 8.4% 7.5% 1,424,687 3,073,242Data 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 rate at which rentable space 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.

2010 vs. 2011 Vacancy & Absorption




County/Submarket Inventory (SF)

Total Vacant

(SF)

Vacancy Q1 (%)

Vacancy Q2 (%)

Vacancy Q3 (%)

Vacancy Q4 (%)

Milwaukee Downtown 12,040,175 1,615,925 12.5% 12.6% 13.1% 13.4%North Central 10,759,078 1,124,848 12.4% 11.9% 11.3% 10.5%North Shore 7,604,171 993,990 12.1% 12.9% 12.9% 12.8%Northwest 18,593,846 1,527,422 9.0% 8.7% 8.6% 8.2%South 23,587,477 1,964,487 8.6% 8.6% 8.1% 7.9%South Central 10,288,571 1,240,743 12.0% 12.4% 12.3% 12.1%

West 12,408,380 1,171,276 9.4% 9.1% 6.7% 9.4%Milwaukee Total 9,638,691 12,527,649 10.4% 10.3% 9.9% 10.0%Waukesha Northeast 1,093,520 1,520,864 5.7% 5.7% 5.3% 6.0%

Northwest 823,643 1,407,622 6.0% 5.2% 4.6% 7.2%Southeast 883,714 1,169,083 4.9% 4.9% 5.6% 5.5%Southwest 729,493 1,150,923 5.2% 5.2% 4.6% 4.5%

Waukesha Total 3,530,370 5,248,492 5.5% 6.4% 5.3% 5.0%Ozaukee 1,563,826 1,746,344 14.1% 14.1% 12.5% 12.2%Racine 1,040,091 1,943,595 3.6% 3.6% 4.1% 3.6%Sheboygan 826,314 1,106,003 6.5% 6.5% 6.5% 6.5%Kenosha 2,262,457 2,603,463 10.8% 10.7% 10.6% 10.7%Walworth 377,886 476,643 6.7% 6.6% 6.4% 4.3%Washington 1,073,246 1,306,955 6.5% 6.5% 5.5% 5.3%Grand Total 268,008,428 20,312,881 8.0% 7.9% 7.6% 7.5%

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).

2011 Quarterly Vacancy Rates

Data Source: Xceligent Milwaukee Industrial Market Report Q4 2011




Data Source: Xceligent Milwaukee Industrial Market Report Q4 2011

Figure 1: 2010 vs. 2011 Vacancy by County Comparison

2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4Total Vacancy Rate 8.4% 8.0% 7.9% 7.6% 7.5%Asking Direct Lease Rate $4.99 $4.96 $4.93 $4.90 $4.91

$3.50

$4.00

$4.50

$5.00

$5.50

6.9%

7.1%

7.3%

7.5%

7.7%

7.9%

8.1%

8.3%

8.5%

Total Vacancy Rate

Asking Direct Lease Rate

The side by side vacancy bar chart by county shows a generally positive trend of declining vacancy between 2010 and 2011. Markets west of I-45 and south of I-94 outperformed the other markets.

The data demonstrates a generally positive trend of declining vacancy in 2011 with positive absorption in all four quarters with a burst of positive absorption since mid-2011.

Figure 3: Quarterly Vacancy vs. Asking Lease Rates

Figure 2: Quarterly Absorption vs. Vacancy

The data demonstrates how vacancy rates have steadily declined since Q4 2010 while asking lease rates have held relatively steady. Despite stabilized asking rates, modest landlord incentives such as free rent, lower base rent, and tenant improvement packages continued in 2011.

8.4%

10.7%11.5%

13.1%

4.9%

4.1%

7.3%

6.0% 5.8%

7.5%

10.7%10.0%

12.2%

3.6%

6.5%

4.3%

5.3%5.0%

Grand Total Kenosha Milwaukee Ozaukee Racine Sheboygan Walworth Washington Waukesha

2010

2011

2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4Absorption Square Feet 1,424,687 1,430,370 245,853 1,150,904 270,218Vacancy Rate (%) 8.4% 8.0% 7.9% 7.6% 7.5%

7.0%

7.2%

7.4%

7.6%

7.8%

8.0%

8.2%

8.4%

8.6%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

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

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

[email protected]

Southeastern Wisconsin 2011 Industrial Market Report...2010. (Source: Xceligent/CARW). Milwaukee and...

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