The More Real Estate Changes, the More it Stays the Same

James Cook, National Director of Analytics, Xceligent

Today’s Topics

the economythe state of commercial real estate

how does Madison stack up?some “Future Trends” for CRE

51% Say the Economy is “Good”The first time more than half have said so in 7 years.

Partying Like it’s 19992014 saw more U.S. jobs added in any year since 1999.

5.6% Unemployment in December

The “5 under 4”5 Large Metros with Unemployment Under 4%

Rank

By

Unemployment %

Unemployment Rates for

Large Metropolitan Areas

Monthly Rankings

Not Seasonally Adjusted

Nov. 2014p

Unemp.

(BLS)

Q 3 ‘14 Office Vacancy

Absorption-SF

(Xceligent)

Q4 ‘14 Office Vacancy

Absorption-SF

(Xceligent)

1

Minneapolis-St. Paul-

Bloomington, MN-WI

Metropolitan Statistical

Area

3.015.8 %

18,234

15.2 %

510,192 SF

2Columbus, OH Metropolitan

Statistical Area3.7

13.7 %

61,079 SF

13.3 %

147,291 SF

3

Austin-Round Rock-San

Marcos, TX Metropolitan

Statistical Area

3.98.7 %

476,911 SF

8.90 %

49,892 SF

3

Denver-Aurora-Broomfield,

CO Metropolitan Statistical

Area

3.912.1 %

683,044 SF

12.4 %

261,475 SF

3

Oklahoma City, OK

Metropolitan Statistical

Area

3.912.4 %

49,224 SF

12.1 %

35,752 SF

Madison’s Unemployment is 3.4%Wisconsin as a whole is 4.7%

The lowest November metro unemployment rates were in the small metros:

Lincoln, Neb., 2.1 %Fargo, N.D.-Minn., 2.2 %

Mankato-North Mankato, Minn., 2.2 %

Dropping Energy PricesGood for consumers, good for retail.

Average U.S. gas prices will drop to $2.33/gallon in 2015.

Average U.S. household will have an extra $700 to spend in stores and

restaurants.(Forecast: US Energy Information Administration)

Dropping Energy PricesBad for energy companies, bad for office demand in energy markets.

Office markets with heavy energy concentration include Houston, Oklahoma City, Denver & Dallas.

Sentiment at Highest Level in 10 YearsUniversity of Michigan Index of Consumer Sentiment

U.S. Retail Brokers Vacancy Rate Outlook*

*Q4 2014 Xceligent Advisory Board Market Pulse Survey

57% of retail brokersexpect that vacancyrates will drop over thenext 6 months.

U.S. Retail Brokers Lease Rate Outlook*

*Q4 2014 Xceligent Advisory Board Market Pulse Survey

A majority of retailbrokers (70%) expectlease rates to go up.

30% expect they willremain steady.

U.S. Retail Brokers Describe the Market*

*Q4 2014 Xceligent Advisory Board Market Pulse Survey

Madison Retail Vacancy Stays Low227,057 SF Absorbed in 2014

Will retail occupancies plummet as the digital generation ages?

What percent of millennials prefer bricks-and-mortar shopping?

82%

18%

Bricks Online

22%

78%

Bricks Online

43%57

%

Bricks Online

82% 43% 22%

Source: Accenture, 2013

What percent of millennials prefer bricks-and-mortar shopping?

82%

18%

Bricks Online

82%

Source: Accenture, 2013

$165.11

$241.80

$305.58

$364.80 $375.00 $346.12 $351.00

$-

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

$400.00

Age 14-17 Age 18-24 Age 25-34 Age 35-44 Age 45-54 Age 55-64 65 and Over

Monthly Mall Spending by Age Group

Age 14-17 Age 18-24 Age 25-34 Age 35-44 Age 45-54 Age 55-64 65 and Over

Source: 2012 U.S. Mall Consumer Shopping Patterns by Age, ICSC Research

Teens and older folks spend the most time

shopping, but middle ages spend the

most money.

So, retailers have nothing to fear in the digital age?

Future Trend: 3D PrintingA Headwind for Industrial & Retail

3D printer shipments forecasted to grow 10 times by 2017

Looking for Big Growth in Smaller Footprints

28 new Neighborhood Markets last quarter.

170 to open this quarter.

Walmart US’s same-store sales increased by 0.5%

last quarter.

Comp sales for Neighborhood markets

grew by 5.5%.

227,267 SF of Industrial Absorbed in 2014Vacancy rate remains at 4.8%

Madison Industrial Vacancy lowcompared with similar markets.

3.0%

4.8% 5.0% 5.1%5.8%

10.2%

11.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Omaha Madison Tulsa Milwaukee OklahomaCity

Austin Little Rock

Q4 2014 Industrial Vacancy Rates

U.S. Industrial Brokers Describe the Market*

*Q4 2014 Xceligent Advisory Board Market Pulse Survey

U.S. Industrial Brokers Vacancy Rate Outlook*

*Q4 2014 Xceligent Advisory Board Market Pulse Survey

Industrial brokers are bullish aboutdropping vacancies.

57% of industrial brokers predictvacancy rates will drop in the nextsix months.

14% expect rates to drop to near-record lows, up from 10% a yearago.

Madison Office Vacancy Dropping Slowly64,269 SF Absorbed in 2014.

Madison Office Vacancy Rateson the high end, compared to other markets.

8.8% 9.0%

12.1% 12.1%

14.1%

18.0%18.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Little Rock Austin Omaha OklahomaCity

Madison Milwaukee Tulsa

Q4 2014 Office Vacancy Rates

U.S. Office Brokers Describe the Market*

*Q4 2014 Xceligent Advisory Board Market Pulse Survey

Boomers dominate the workforce now,but millennials will be tops in 2022.

A Generational Shift for Office SpaceRecruit young office workers with vibrant LWP locations.

“Any company wanting to attract and retain young educated workers who prefer live, work, play locations needs to locate in a compact, mixed-use, walkable place, either downtown or in the suburbs.”

Emil MaliziaAuthor, Preferred Office Locations(Interview in Developments, Winter 2014)

Office rents are $4.48 higher in CBDs than in typical suburban office

properties.

Office rents in Suburban Vibrant Centers are $3.39 higher than typical single-use suburban areas.

LWP = Live Work PlayPictured: Reston Town Center, Reston VA

Will every millennial be recruited by an LWP employer?

Over 40% of workers will be “contingent” by

2020.

Contingent workers include independent contractors,

freelancers & entrepreneurs.

(Forecast: Intuit)

This is bad for office demand.

Contingent workers don’t go to the office.

Or do they?

Future Trend: Contingent Workers Flock Together

Future Trend: Contingent Workers Flock TogetherCo-working spaces will absorb significant office vacancy.

What is this?

The new “Frozen” ride at Disney World?

It’s the office of the future!According to Dutch researchers, anyway.

Future Trend??

Future Trend: Back to PrivacyThe Open-Floorplan Backlash

U.S. Office Brokers Market Outlook*

*Q4 2014 Xceligent Advisory Board Market Pulse Survey

53% of office brokersexpect that the marketwill remain about thesame for the next sixmonths.

1,037 Multi-family units sold in 2014Average unit price jumped from $45,454 to $60,094.

Dane County Multi-family Sales

Totals Down and Up

2012 - $96.1 million2013 - $52.3 million 2014 - $62.3 million

Dane County Number of

Multi-family Sales Declining

2012 - 652013 - 542014 - 44

Dane County bucks the national trend:

U.S. multi-family sales prices have

dropped, but overall sales volume has

risen.

What did we learn?

jobs and income growing

expect 2015 growth in all CRE

sectors

a wave of contingent workers

coming soon to a Starbucks near

you

generational shifts transforming

CRE in all sectors

The More Real Estate Changes, the

More it Stays the SameJames Cook, National Director of Analytics, Xceligent

Contact me: jcook@Xceligent.com