Milwaukee Office Market2010 Year in Review

Appraisal Institute – Wisconsin ChapterNovember 11, 2010

2010 Office Market Overview

• Leasing Activity

• Net Absorption

• Vacancy & Availability

• Investment Activity

• Capitalization Rates

Office Market – Bright Spots in 2010

• No New Construction

• Class A Office

• Submarkets - Downtown & along I-94 Corridor

• Downtown Investment Activity

Leasing Activity – Milwaukee Office Market

Vacancy Trends – Milwaukee Office Market (Includes Milwaukee, Waukesha, Ozaukee, Washington Counties)

3Qtr 2009 3Qtr 2010 3Qtr 2009 3Qtr 2010 3Qtr 09 3Qtr 10 Change

All Office 58,772,000 58,839,000 6,540,000 6,902,000 11.1% 11.7% 0.6%

Multi-Tenant 31,963,000 31,963,000 6,116,000 6,624,000 19.1% 20.7% 1.6%

Total Inventory Vacant Space Percent Vacant

MILWAUKEE OFFICE - VACANCY TRENDS(3rd Qtr 2009 vs 3rd Qtr 2010)

11.1%

19.1%

11.7%

20.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

All Office Multi-Tenant Office Only

3Qtr 09 3Qtr 10

Downtown vs. Suburban Office – 3Qtr 2010

Total SF Vacant SF Avail SF Vac % Avail %

Dtwn/3rd Ward 13,199,000 2,722,000 3,782,000 20.6% 28.7%Suburban 18,764,000 3,902,000 5,927,000 20.8% 31.6%

Totals 31,963,000 6,624,000 9,709,000 20.7% 30.4%

Supply Vacant/Available Percent

VACANCY & AVAILABILITY RATES(Downtown vs Suburban)

20.6% 20.8%

28.7%31.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Dtwn/3rd Ward Suburban

Vacancy Rate Availability Rate

Downtown Office By Class (A vs. B/C)As of Third Quarter 2010

Total SF Vacant SF Avail SF Vac % Avail %

Dtwn - Class A 5,039,000 806,000 1,041,000 16.0% 20.7%Dtwn - Class B/C 8,160,000 1,916,000 2,741,000 23.5% 33.6%

Total 13,199,000 2,722,000 3,782,000 20.6% 28.7%

Supply Vacant/Available Percent

DOWNTOWN VACANCY vs. AVAILABILITY RATE

16.0%

23.5%20.7%

33.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Downtown - Class A Downtown - Class B/C

Vacancy Rate Availability Rate

Suburban Office By Class – 3Qtr 2010 Source: CoStar Property

Supply

Total SF Vacant SF Avail SF Vac % Avail %

Suburban - Class A 3,877,000 817,000 988,000 21.1% 25.5%Suburban - Class B/C 14,887,000 3,085,000 4,939,000 20.7% 33.2%

Total 18,764,000 3,902,000 5,927,000 20.8% 31.6%

Vacant/Available Percent

SUBURBAN VACANCY vs. AVAILABILITY RATE

21.1% 20.7%25.5%

33.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Suburban - Class A Suburban - Class B/C

Vacancy Rate Availability Rate

Vacancy By Submarket – 3Qtr 2010

18.1%

22.7%

24.1%

24.4%

19.8%

27.6%

17.8%

21.3%

15.3%

19.9%

12.5%

19.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Dtwn-E

Dtwn-W

Dtwn-3rd

Milw (Outside)

Mayfair/Wau.

North Shore

West Allis

Brook/NB

Cent.Waukesha

Wauk Cnty (other)

Ozaukee Cnty

Wash. Cnty

Submarkets to left of this line are performing better than the overall market average

Historical Vacancy Trend – Milwaukee Office

Availability Rate TrendSource: CoStar Property

Market Trends – Absorption, Deliveries, & Vacancy

Office Sales Volume Trends

Office Sales – Sale Price/SF Trend

Who Are the Buyers???

3-yr 1-yr

Individuals 27.8% 41.2%

Inst. Investors 30.6% 17.7%

National Cap Rate Trends – CBD & Suburban

National Cap Rate Trends & Value Change

Observations:

• All the growth in value from cap rate compression between 2000 and 2007 was lost in just 2-years (2007-2009)

•Surveys suggest stabilization in office cap rates by First Quarter 2010 with a slight decrease in the 2nd and 3rd quarter of 2010

Cap Rate Trends & ValueSuburban Office

National ValueCap Rate Change

3Q-2010 8.40% 2.3%2Q-2010 8.60% 2.2%1Q-2010 8.79% -0.5%

2009 8.75% -15.3%2008 7.59% -5.4%2007 7.20% 7.1%2006 7.75% 4.6%2005 8.12% 7.0%2004 8.73% 8.1%2003 9.50% 5.2%2002 10.02% -5.6%2001 9.49% -2.9%2000 9.22% -

2000 - 2007 21.9%2007 - 2009 -21.5%

Source: Korpacz RE Investor Survey

Milwaukee Cap Rates

Office Market Projection for 2011

• Vacancy – Stable

• Rental Rates – Stable

• New Construction – None

• Cap Rates – Stable

• Investment Activity – Increase

Contact Information

Michael J. TompkinsVice PresidentThe Nicholson Group LLC 555 S Industrial Drive, Suite 207Hartland, WI 53029

262.369.5400 ext 23262.369.5401 Fax262.993.2092 Mobilemtompkins@nicholson-group.com