2017: The Year of Corporate Investment

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1 Year End Market Report METROPOLITAN MILWAUKEE OFFICE 2017 Research Wisconsin 2017: The Year of Corporate Investment The office market performed well in 2017, especially in the single tenant and owner occupied space. The largest news of the year for the overall market was Foxconn s, a Taiwanese manufacturer, commitment to build a $10 billion manufacturing facility in Southeastern Wisconsin, just south of metro Milwaukee. The impact this will have on the office market is still unknown, but the market is likely to experience spillover effects. User deliveries of office space hit historic highs in Leading the charge was the delivery of Northwestern Mutual s 1.1 million square foot downtown headquarters that was delivered in August. The Medical College of Wisconsin (MCW) completed a new professional office building at the end of year adding 318,000 square feet to its existing campus. Milwaukee Tool also completed an expansion in the second half of 2017, expanding their operations by nearly 200,000 square feet. The three largest user deliveries of the year total nearly 2 million square feet and increased Metro Milwaukee s office inventory by 2.9 percent, the largest inventory growth this cycle. Beyond user deliveries, other companies have committed or announced plans to commit to the area. At the end of 2016, BMO Harris Bank announced plans to be the anchor tenant in Irgens Partners new downtown tower. Site work began in the fall and the project has an expected completion of December Hammes Company also began work on a new downtown headquarters, which is slated for occupancy in mid Rev Group relocated to downtown Milwaukee from Florida. Brookfield based Fiserv has announced plans to relocate and while a short list has been made, no final decisions have been announced. Recall 2016 saw multiple downtown multi-tenant assets trade hands, including Associated Bank s purchase of the Milwaukee Center. The activity continued in 2017 with the second and third largest multi-tenant buildings in the state, 411 E Wisconsin and 310 W Wisconsin respectively, trading hands. Unlike 2016, 2017 saw increased activity in the single tenant market on both the user, as highlighted above, and the investor side. Two of the largest sale transactions of the year were the sale of Manpower Groups Headquarters in Milwaukee s Central Business District (CBD) and the sale of AT&T s data center in Pewaukee. COMPANIES INVESTING IN MILWAUKEE FOXCONN NORTHWESTERN MUTUAL MEDICAL COLLEGE OF WISCONSIN MILWAUKEE TOOL BMO HARRIS BANK REV GROUP HAMMES COMPANY A.O. SMITH HUSCO INTERNATIONAL

2 Economic Activity Unemployment continued to drop in Q4 with metro Milwaukee unemployment dropping to 3.0%. For metro Milwaukee office using jobs increased year over year and while job growth has continued, the pace of growth has slowed in recent years. Unlike Q3, where Wisconsin had a negative contribution to the Midwest Economy Index (MEI), Wisconsin had the largest positive contribution in the region for November. Across the region, the sector that had a material impact on the region was manufacturing. Positive across all states, manufacturing continues to be a driving force for the region. As expected, during the winter months construction activity slows leading to construction, services and consumer sectors having slightly negative contributions to the regional economy. Economic Indicators METRO MKE UNEMPL. 3.0% WISCONSIN UNEMPL. 3.2% NATIONAL UNEMPL. 4.1% WI MEI* ,900 OFFICE USING JOBS Milwaukee-Waukesha-West Allis MSA Source: St. Louis FRED November 2017 Employment Numbers Quarter over Quarter Source: Bureau of Labor Statistics, November 2017 *Relative Midwest Economy Index: Wisconsin s contribution to the Chicago FED Midwest Economy Index. A positive value signals above average performance +900 YEAR OVER YEAR Office Using Jobs SPECIALTY REPORT UPDATED DATA STANDARDS In December, one of the major commercial real estate data providers, Xceligent, filed Chapter 7 bankruptcy, with all operations halting. Since 2012, Xceligent had served as Colliers Wisconsin primary quarterly data source. As a result, CoStar Group is now the primary data source for Colliers Wisconsin quarterly data and market reports. The shift in data providers will result in a shift in the data, however, the overall market trends remain the same. The change in providers allows Colliers Wisconsin to now track both the single and multi-tenant market as outlined below. The data that is contained within this report consists of single and multi-tenant properties, including owner occupied, exceeding 20,000 square feet. Medical office properties that do not primarily serve as clinical space are also included in the tracked set. Submarkets and building inclusion in the tracked set were defined by the Colliers Wisconsin Research and Office Services Teams. The data contained herein was sourced based on the above guidelines from CoStar Group. This includes not only 2017 Q4 data, but also historical data dating back to Modifications to the data have been made based on proprietary information. Market Indicators VACANCY NET ABSORPTION CONSTRUCTION Quarter Over Quarter Year Over Year Summary Statistics Q Office Market MKE CBD Suburban Vacancy Rate 8.49% 8.29% 8.63% Change From Q (basis points) Absorption New Construction Under Construction ,489-11, , , , , ,270 85,500 3 Research & Forecast Report 2017 Year End Metropolitan Milwaukee Colliers International

3 SPECIALTY REPORT DOWNTOWN NORTH: A NEW CBD SUBMARKET Fifteen years ago the old Schlitz Brewery and Pabst Brewery were separated from each other and Milwaukee s CBD by the Park East Freeway. Since the removal of freeway and years of dormancy development in both areas has flourished resulting in the revitalization of the corridor. The increased activity has connected Schlitz and Pabst Breweries and has spurred auxiliary development in the surrounding areas. As a result, a new CBD submarket has emerged: Downtown North. Bordered by Juneau Avenue to the south, I-43 to the west, North Avenue to the north, and Lake Michigan to the east, Downtown North consists of nearly 1.8 million square feet. The submarket is poised for continued growth with two of three CBD projects currently under construction located in Downtown North, growing the submarket to just over 2.0 million square feet by the end of With the new entertainment district and Milwaukee Buck s arena also located in the submarket, the submarket will likely experience continued growth in the coming years. For a detailed overview of availability in the submarket, see our specialty year end office corridor report. 43 E Brady St W Walnut St E Pleasant St N 8th St W Highland Ave N 7th St N 8th St N 9th St N 10th St North-South Fwy N 6th StS 6th St N 5th St N 4th St E Lyon St DOWNTOWN NORTH E Ogden Ave W Mckinley W Juneau Ave State St Wells St DOWNTOWN W Wisconsin Ave Canal St 43 W Bruce St WEST W Pierce St W Michigan St 794 N Old World 3rd St Freshwater way N 2nd St W Florida St W Virginia St N Water St S 1st St S 2nd St S 3rd St S 4th St S 5th St W National Ave N Plankinton Ave W Oregon St E Knapp St S Barclay St N Broadway N Milwaukee St E Chicago St E Erie St S Water St E Juneau Ave E Kilbourn Ave E Clybourn St E St Paul Ave THIRD WARD / WALKER S POINT N Van Buren St N Jackson St E Erie St N Cass St N Marshall St N Astor St E Mason St 794 N Humboldt Ave DOWNTOWN EAST N Farwell Ave N Lincoln Memorial Dr N Prospect Ave HISTORICAL NET ABSORPTION 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , , HISTORICAL NET ABSORPTION 1,200,000 1,000, , , , ,000 0 Net Absorption In the second half of the year, net absorption was driven by suburban user deliveries. With Milwaukee Tool completing its expansion in the beginning of the quarter, Q4 was driven by the delivery both Milwaukee Tool s expansion and MCW s new professional office building. At nearly 320,000 square feet, the eight story building will house Medical College faculty and staff. Beyond the large deliveries, Q4 activity was comprised of smaller move-ins and outs. In the CBD, Two-Fifty had positive absorption on the quarter as the building continues to fill following the repositioning completed by ownership. Also in the CBD, the Mercantile Building continues to fill space following the expansion with only 7,000 square feet still available. Though not included in Q4 numbers, Wage Works announced at the end of the quarter that it would be relocating downtown, leasing 37,000 square feet at 735 N Water St. As a year, 2017 outperformed the previous five years in terms of net absorption. A majority of the positive net absorption is attributed to Northwestern Mutual s downtown headquarters. Excluding the 1.1 million square foot building, 2017 still outperformed both 2013 and 2015, but fell short of the strong numbers posted in 2014 and , Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 CBD Suburban 4 Research & Forecast Report 2017 Year End Metropolitan Milwaukee Colliers International

4 NORTHWEST Silver Spring Dr. Hwy 181 NORTH HISTORICAL VACANCY RATE By Class 13.0% Capitol Dr. 12.0% 11.0% Hwy 83 WEST CENTRAL CBD 10.0% 9.0% 8.0% 7.0% SOUTH 6.0% 5.0% Milwaukee / Racine County Line 2014 Q Q Q Q Q Q Q Q Q Q3 Market A B 2016 Q Q Q Q Q4 Vacancy After a slight up-tick in the beginning of the year, vacancy in Q4 decreased slightly. With a market vacancy rate of 8.49%, vacancy remained relatively stable compared to Q4 2016, increasing only 0.3 basis points. With a full building availabilities in both the west and northwest submarkets, these two submarkets realized the highest vacancy across the market. As the second smallest submarket, the north submarket realized the lowest vacancy as Mequon continues to perform well and has few vacancies available. The central submarket has consistently decreased vacancy with tenants favoring the suburban submarket s close proximity to downtown and adjacency to MCW s campus. The CBD has seen vacancy fluctuate due to new speculative product coming to market. Buildings such as 833 East have continued to fill following delivery but tend to create a small spike in vacancy when first delivered. This has resulted in Class A vacancy rates increasing slightly as new product comes to market. Vacancy across Class B space has continued to decrease, resulting in Class B space ending the year with slightly less vacancy than Class A space. New Construction Nearly 540,000 square feet of new product was delivered to the suburban submarkets in Q4. Both deliveries were user expansions of existing facilities or campuses. Moving into 2018, the construction pipeline for office product is steady with over 600,000 square feet currently under construction. The three largest projects are located in the CBD, of which 250,000 square feet is slated to be delivered in The largest project currently under construction is the BMO Harris Financial Tower. Located in downtown east, the building will be built where the previous parking garage servicing 770 N Water was located. The property is set to be delivered in 2019, and along with BMO Harris Bank, Michael Best & Friedrich will be taking occupancy in the building. Beyond downtown, other companies investing and expanding in their space are A.O. Smith for a new lab and office space in Park Place and HUSCO International expanding their corporate office in Waukesha. VACANCY RATE By Submarket 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 8.29% 6.73% 4.53% 8.93% 6.52% 12.26% CBD Central North Northwest South West OFFICE CONSTRUCTION Market Vacancy Rate = 8.49% 707,220 SF UNDER CONSTRUCTION 1,796,830 SF DELIVERED YTD Sources: CoStar, & Colliers Wisconsin Research 5 Research & Forecast Report 2017 Year End Metropolitan Milwaukee Colliers International

5 Metro Milwaukee Office Market 2017 Quarter 4 EXISTING PROPERTIES TOTAL VACANCY NET ABSORPTION - SF NEW SUPPLY - SF UNDER BLDG TYPE BLDGS TOTAL SF SF Q4-17 CURRENT QUARTER YEAR TO DATE CURRENT QUARTER YEAR TO DATE CONST. SF CBD - Downtown North, Downtown East, Downtown West, Third Ward & Walker's Point A 32 8,360, , % 25,475 1,098,448-1,248, ,720 B 97 10,747, , % -39,172-8, C ,854 3, % 2,189 2, Total ,898,477 1,650, % -11,508 1,092,376-1,248, ,720 CENTRAL - Near West Side, Wauwatosa, West Allis A 21 2,940, , % 324, , , ,000 - B 59 3,745, , % -72,079 84, ,000 C 22 1,068, , % 0-14, Total 102 7,753, , % 252, , , ,000 22,000 NORTH - Milwaukee East, North Shore, Mequon A 12 1,041,560 21, % 4,645 11, B 64 2,890, , % 5,480-7, C 5 367,329 6, % 5,777 32, Total 81 4,299, , % 15,902 35, NORTHWEST - Northwest Milwaukee, Menomonee Falls, Germantown A 16 2,634, , % 21,275-2, ,700 B 41 1,704, , % -28,410 5, C 2 61, % Total 59 4,400, , % -7,135 3, ,700 SOUTH - Greenfield, South Milwaukee, Oak Creek, Franklin A 5 1,224, % 0 120, B 25 1,151, , % 27,972 26, C 8 283,584 28, % 9,327 9, Total 38 2,659, , % 37, , WEST - Brookfield, Waukesha, New Berlin, Pewaukee A 43 3,365, , % 14,560-14, , ,000 20,800 B 146 6,479, , % -8, , C 8 229, % Total ,074,367 1,234, % 6, , , ,000 20,800 GRAND TOTAL A ,567,671 1,766, % 390,437 1,571, ,000 1,796, ,220 B ,717,308 2,258, % -114,241-46, ,000 C 58 2,800, , % 17,293 29, Total ,085,768 4,168, % 293,489 1,553, ,000 1,796, ,220 QUARTERLY COMPARISON TOTALS 2017 Q ,085,768 4,168, % 293, ,000 1,796, , Q ,989,022 4,170, % 1,289,509-1,127,500 1,237, , Q ,689,022 4,156, % -126, , ,000 1,273, Q ,689,022 4,047, % 97, ,383, Q ,689,022 4,048, % 270, ,624 1,528,000 The data contained within was obtained by a third party source deemed reliable. Updates have been made to include proprietary information. Copyright 2018 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Colliers International Wisconsin 833 E. Michigan Street Suite 500 Milwaukee, WI colliers.com/wisconsin 6 North American Research & Forecast Report Q Office Market Outlook Colliers International