S U B M A R K E T R E P O R T

North Milwaukee/Ozaukee Submarket, Milwaukee MSA Fourth Quarter 2007

SUBMARKET MAP SUBMARKET FACTS



43
Submarket Metro


57



84



45 Population 500,958 1,519,871

Avg. Annual Five-Year Chg.* -0.2% 0.3%



33
North
North


41

Milwaukee/
Milwaukee/ Total Households 197,046 611,551


143

Ozaukee
Ozaukee Avg. Annual Five-Year HH Chg.* 0.2% 0.7%


60

Lake
Lake
Lake
Lake
Lake
Lake Median Household Income $49,106 $56,066
Michigan
Michigan
Michigan
Michigan
Median Age 35.2 37.5


145



167



41 Employment 269,286 941,832


164

Vacancy Rate (3Q 07) 9.9% 9.6%



43
Avg. Asking Rent (3Q 07) $15.37 $15.16
* 2006-2011 Forecast

SUBMARKET VACANCY RANKING SUBMARKET HIGHLIGHTS

3Q 07 3Q 07 A stable economic outlook and healthy revenue
Submarket Vacancy Asking Rents growth continue to draw investors to the North
Milwaukee/Ozaukee area. Submarket metrics are sup-
Waukesha County 8.3% $17.02
ported by limited construction and an ability to make
gains in gross revenue, which has attracted out-of-state
North Milwaukee/Ozaukee 9.9% $15.37
buyers to the market. Fundamentals have strengthened
in the region, as vacancy has improved 160 basis points
South Milwaukee County 12.6% $13.17
to 9.9 percent over the last three years. As such, gross
revenues have averaged 3 percent annual growth in that
time to reach $13.85 per square foot, bolstering operating
incomes and property values. Going forward, revenue
growth will increasingly maintain asset valuations. Cap
rates are forecast to trend higher over the next year,
largely due to contracting investor confidence.
Deals will take longer to close due to a changing
lending environment that is helping to widen the
expectations gap between buyers and sellers. The
recent credit crisis has forced financial institutions to
steer away from pro forma lending and now rely on
balance sheet figures. Adjustments in the market can-
not be avoided, though, as sales velocity is expected to
slow over the next several months. Continued deceler-
ation in sales velocity will reflect longer negotiation
times; however, sellers that adjust their expectations in
accordance with a less active pace of investor activity
should be able to close deals relatively quickly.

Michael L. Brown © Marcus & Millichap 2007

Research Associate www.MarcusMillichap.com
North Milwaukee/Ozaukee Submarket, Milwaukee MSA Retail Submarket Report ◆ Fourth Quarter 2007

Construction Trends CONSTRUCTION TRENDS

◆ Local retail inventory expanded by 4.2 percent in 2006 with the
Square Feet Completed (thsouands)

240
delivery of 207,000 square feet, compared with 142,000 square feet
180 in the preceding year.

120 ◆ By year-end 2007, construction activity is expected to decelerate.

Approximately 34,000 square feet of retail space is forecast for
60 delivery this year, representing an increase of less than 1 percent.

0 ◆ The submarket’s largest current project, The Brewery, is a multi-

03 04 05 06 07* tenant retail development that is expected to add 150,000 square
* Forecast
Sources: Marcus & Millichap Research Services, Reis, TWR feet to stock upon its target completion in the fourth quarter of 2008.

RENT AND VACANCY TRENDS

◆ As tenant demand advanced in the second quarter of 2007, vacan-
cy decreased 300 basis points to 9.9 percent when compared to the
same quarter last year. Year-end vacancy is projected to increase
Asking Rent and Vacancy Trends to 10.5 percent; however, on a year-over-year span, vacancy will
have dropped 310 basis points from the 13.6 percent rate record-
Average Asking Rent per Square Foot

Average Asking Rent 18%

$16
Vacancy
ed at the end of 2006.
$15 15%
Vacancy Rate

◆ Over the last year, asking rents have appreciated 1.2 percent to
$14 12% $15.37 per square foot, while effective rents have expanded
approximately 0.5 percent, illustrating owners’ willingness to
$13 9%
offer concessions in an effort to keep vacancy under control.

$12 6%
◆ By year end, asking rents are projected to reach $15.44 per square
* 3Q 2007
03 04 05 06 07* foot, while effective rents will appreciate to $13.77 per square foot,
Sources: Marcus & Millichap Research Services, PPR, Reis anticipated year-over-year growth of 2.3 percent and 1.4 percent,
respectively.

RETAIL SALES GROWTH

◆ The Milwaukee MSA’s population is projected to expand by 0.3
percent this year, marking the most significant annual increase
Retail Sales Growth since 2000, when population growth was posted at 0.4 percent.
7% Milwaukee Strong demographic trends in particular age cohorts, such as the
Year-over-Year Percent Change

United States
50- to 64-year-old age group, will support retail spending due to
6% this age bracket’s elevated level of disposable income.

5% ◆ Retail spending in the Milwaukee MSA is forecast to grow 4 per-

cent, helping to maintain retail tenant demand.
4%
◆ Going forward, cap rates are forecast to trend higher due to
3% reduced investor confidence. During the next six to eight months,
03 04 05 06 07*
* Forecast
cap rates are expected to hover in the low- to mid-8 percent range.
Sources: Marcus & Millichap Research Services, CoStar Group, Inc. Owners that want to sell their properties quickly will need to price
their assets accordingly in order to avoid lengthy times on the
market or major renegotiations.

Michael L. Brown © Marcus & Millichap 2007

Research Associate www.MarcusMillichap.com
Sources: Marcus & Millichap Research Services, BOC, CoStar Group Inc., RCA, Reis, SRC, TWR
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.