Metropolitan Milwaukee Office Market Report Third Quarter 2015 RETAIL OFFICE INDUSTRIAL LAND INVESTMENT NAI MLG COMMERCIAL 414 347 9400 757 N BROADWAY, SUITE 700, MILWAUKEE, WI 53202 MLGCOMMERCIAL.COM
Third Quarter 2015 The Milwaukee office market had little overall net change in the third quarter of 2015, but that small net change does not represent large changes in individual buildings and sub markets. Over the past year, the market has gained 232,181 SF of positive absorption, however, large big block users continue to give back space as they reposition or leave the Milwaukee lease market. Kohl s corporate vacated 3 buildings and moved to their Menomonee Falls Campus, and Wells Fargo Home Mortgage, Assurant Health, and Extendicare all left the market and gave back large amounts of space. The office market experienced 20,610 SF of positive absorption for the quarter, the availability crept down to 22.13% from 23.4% a quarter ago and the vacancy rate remained steady at 15.35%. Another continuing trend that affects the MLG s report is Class B/C properties being repurposed as apartment buildings. The Class A office market continues to be very strong, as it experienced 23,571 SF of positive absorption for the quarter and the overall market availability rate dropped from 14.04% (Q2 15 ) to 13.47%. Class A space is even more difficult to find within the Central Business District with an 8.43% availability rate and a vacancy rate of 4.64%. Positive Absorption Has Led To Multiple New Projects Class B&C properties experienced 2,961 SF of negative absorption for the quarter and the availability rate decreased slightly to 23.62% as 180,744 SF will be repurposed at the West Allis Center. Central Business District Class B/C properties experienced 38,651 SF of positive absorption for the quarter and the availability rate fell to 21.55%. Class B/C CBD properties would have experienced a negative quarter if it were not for GWL&A moving into 67,935 SF at Chase Tower. For the quarter 60 properties showed positive absorption greater than 1,000 SF while only 42 properties had negative absorption greater than 1,000 SF. This high ratio is an indicator of strong growth of mid-sized firms. Eight office buildings traded hands this quarter within the tracked set. Most notable were 620 S 76th St selling for $14.5M, 250 Plaza selling for $9.75M and 3077 N Mayfair selling for $3.3M. Q3 Economic Outlook Lease Concessions Total Vacancy Rate The low availability rates and continuous amounts of positive absorption has led to multiple new projects in the CBD to be announced. 833 Michigan, 352,000 SF project is expected to be delivered in the summer of 2016 250 Plaza is scheduled to undergo significant renovations Schlitz Park will add 290,000 SF office space over the next 3 years Northwest Mutual s 1.1 million SF office building is completed in 2017 Average Asking Lease Rate Net Absorption Quarterly Absorption by Submarket The availability rate for Brookfield class A properties is 32.45%. 66,115 SF of the 102,869 SF that is available can be attributed to JDA Software trying to sublease three floors at 20700 Swenson Drive. JDA Software still occupies the space and has not yet finalized a move out date. Without JDA Software s space included the availablity and vacancy rates are a healthy 11.59% and 5.33%. *NAI MLG Commercial s tracked set does not include owner occupied buildings thus Kohl Corporates positive absorption wasn t calculated into the quarterly reports numbers. www.mlgcommercial.com Milwaukee, Wisconsin 414 347 9400 Page 2
Third Quarter Office Submarket Statistics Submarket 3rd & 5th Ward Building Count Total RBA Available Space (SF) Availability Rate Net Absorption (SF) Class B & C 37 2,118,513 382,445 18.05% 1,228 51,246 Airport Total 37 2,118,513 382,445 18.05% 1,228 51,246 Class B & C 28 736,441 239,565 32.53% (13,633) (12,674) Brookfield Total 28 736,441 239,565 32.53% (13,633) (12,674) Class A 4 317,225 102,869 32.43% 12,921 18,118 Class B & C 124 5,175,221 1,221,823 23.61% 19,957 103,893 Downtown East Total 128 5,492,446 1,324,962 24.12% 32,878 122,011 Class A 6 3,113,110 262,327 8.43% 7,058 71,876 Class B & C 45 4,305,130 1,022,873 23.76% 65,814 31,568 Downtown West Total 51 7,418,240 1,285,200 17.32% 72,872 103,444 Class B & C 28 3,922,693 824,325 21.01% (28,391) (44,540) North Shore Total 28 3,922,693 824,325 21.01% (28,391) (44,540) Class B & C 84 2,682,053 634,286 23.65% (57,167) (50,575) Oconomowoc/Lake Country Total 84 2,682,053 634,286 23.65% (57,167) (50,575) Class B & C 28 658,518 99,248 15.07% (15,039) (17,785) Park Place Total 28 658,518 99,248 15.07% (15,039) (17,785) YTD Absorption (SF) Class B & C 26 1,845,504 771,908 41.83% (12,135) (212,125) Pewaukee Total 26 1,845,504 771,908 41.83% (12,135) (212,125) Class A 4 379,081 59,373 15.66% 2,985 (4,207) Class B & C 42 1,557,108 303,852 19.51% 8,326 957 Wauwatosa Total 46 1,936,189 363,225 18.76% 11,311 (3,250) Class A 7 906,588 210,733 23.24% 607 30,574 Class B & C 56 2,211,810 678,611 30.68% 30,672 57,538 West Allis Total 63 3,118,398 889,344 28.52% 31,279 88,112 Class B & C 34 2,209,960 298,490 13.51% (2,593) 9,998 Total 34 2,209,960 298,490 13.51% (2,593) 9,998 Grand Total 553 32,138,955 7,112,728 22.13% 20,610 33,862 Some information contained herein has been obtained from third party sources deemed reliable but has not been independently verified by NAI MLG Commercial. NAI MLG Commercial makes no warranties or representations as to the completeness or accuracy thereof. NAI MLG Commercial makes no guarantee about projections, opinions, assumptions or estimates. Occasionally corrected or updated information becomes available for both current and historical data thereby invalidating specfic comparison to previously issued reports. www.mlgcommercial.com Milwaukee, Wisconsin 414 347 9400 Page 3
Third Quarter 2015 Metropolitan Milwaukee Office Market Report Submarket Availability Availability Rate (%) Submarket Absorption Square Feet Source: CoStar.com The information contained herein has been given to us by sources we deem reliable. We have no reason to doubt its accuracy, however, we do not make any guarantees. All information should be verified before relying thereon. www.mlgcommercial.com Milwaukee, Wisconsin 414 347 9400 Page 4
Historic Availability Historic Absorption Availability By Building Class Absorption By Building Class Available Space by Building Class Total RBA Available SF Availability % Net Absorption Deliveries/Removals CLASS A 4,716,004 SF 635,302 SF 13.47% 23,571 SF ---- CLASS B 25,392,969 SF 6,119,237 SF 24.10% (12,389) SF ---- CLASS C 2,029,982 SF 358,189 SF 17.64% 9,428 SF ---- Q3 TOTAL 32,138,955 SF 7,112,728 SF 22.13% 20,610 SF 0/180,744 Q2 2015 31,992,208 SF 7,487,754 SF 23.40% (6,136) SF ---- Q1 2015 31,965,160 SF 7,413,985 SF 23.19% 19,388 SF ---- Source: CoStar.com The information contained herein has been given to us by sources we deem reliable. We have no reason to doubt its accuracy, however, we do not make any guarantees. All information should be verified before relying thereon. www.mlgcommercial.com Milwaukee, Wisconsin 414 347 9400 Page 5
Third Quarter 2015 Metropolitan Milwaukee Office Market Report LEASE Property Address Tenant Size (SF) Type Chase Tower 111 E Wisconsin Ave, Milwaukee GWL&A 67,935 Move In Schlitz River Center 1515-1575 N River Center Dr, Milwaukee HSA Bank 21,604 Expansion The 100 East Building 100 E Wisconsin Ave, Milwaukee Gruber Law Offices 18,136 Expansion Crossroads Corporate Center II 20800 Swenson Dr, Waukesha Whyte Hirschboeck Dudek, S.C. 12,921 Move In Gaslight Building 626 E Wisconsin Ave, Milwaukee Milwaukee Art Museum 10,876 Move In SALE Recent Transactions Property Address Buyer Sale Date Size (SF) Class Price Fair Park Business Center 620 S 76th St, Milwaukee Sara Investment Real Estate 7/1/2015 119,971 B $14,500,000 250 Plaza 250 E Wisconsin Ave, Milwaukee Fulcrum Asset Advisors 8/3/2015 200,039 B $9,750,000 3077 N Mayfair Road 3077 N Mayfair Rd, Milwaukee HSA Commercial Real Estate 9/1/2015 45,535 B $3,300,000 401 W Kilbourn 401 E Kilbourn Ave, Milwaukee Phoenix Investors 9/28/2015 41,019 B $2,350,000 NAI MLG Commercial Office Brokers Jack Jacobson Principal 414.908.9151 jjacobson@mlgcommercial.com Rachel Schmidt, CCIM Senior Vice President 414.395.4691 rschmidt@mlgcommercial.com Karen Johnson, CCIM Senior Vice President 414.395.4683 kjohnson@mlgcommercial.com Nathan Smith Sales Associate 414.908.9167 nsmith@mlgcommercial.com Tim Janusz Senior Vice President 414.908.9155 tjanusz@mlgcommercial.com www.mlgcommercial.com Milwaukee, Wisconsin 414 347 9400 Page 6
Methodology, Definitions and Submarket Map Methodology: The report includes multi-tenant office buildings 10,000 SF or larger within each of the defined submarkets. Excluded are government buildings, medical office buildings, owner-occupied buildings and buildings that are under a long-term lease. Class A: A classification used to describe buildings that generally qualify as extremely desirable, investment-grade properties and command the highest rents or sale prices compared to other buildings in the same market. Class B: A classification used to describe buildings that generally qualify as a more speculative investment, and as such, command lower rents or sale prices compared to Class A properties. Leasing Activity: The volume of square footage that is committed to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings. Net Absorption: The net change in occupied space over a given period of time. Unless otherwise noted, Net Absorption includes direct and sublease space. Rentable Building Area (RBA): The total square footage of a building that can be occupied by, or assigned to a tenant for the purpose of determining a tenant s rental obligation. Generally RBA includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets. Submarkets: Specific geographic boundaries that serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are building type specific (office, industrial, retail, etc.), with distinct boundaries dependent on different factors relevant to each building type. Availablity Rate: A measurement expressed as a percentage of the total amount of available space divided by the total amount of existing inventory space. Under construction space generally is not included in available calculations. Deliveries: Buildings that complete construction during a specified period of time. In order for space to be delivered, a certificate of occupancy must have been issued for the property. 1 Year Trailing Average: Average of the previous four quarters, including the current quarter. 3 Year Trailing Average: Average of the previous twelve quarters, including the current quarter. 3 Year Trailing Average: Average of the previous twelve quarters, including the current quarter. www.mlgcommercial.com Milwaukee, Wisconsin 414 347 9400 Page 7
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