2015 trends in U.S. commercial real estate. Presented by James Cook, National Director of Analytics at Xceligent.

1. The More Real Estate Changes, the More
it Stays the Same
James Cook, National Director of Analytics, Xceligent

2. Today’s Topics
the economy
the state of commercial real estate
how does Madison stack up?
some “Future Trends” for CRE

3. 51% Say the Economy is “Good”
The first time more than half have said so in 7 years.

4. Partying Like it’s 1999
2014 saw more U.S. jobs added in any year since 1999.

5. 5.6% Unemployment in December

6. 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
3.0
15.8 %
18,234
15.2 %
510,192 SF
2
Columbus, OH Metropolitan
Statistical Area
3.7
13.7 %
61,079 SF
13.3 %
147,291 SF
3
Austin-Round Rock-San
Marcos, TX Metropolitan
Statistical Area
3.9
8.7 %
476,911 SF
8.90 %
49,892 SF
3
Denver-Aurora-Broomfield,
CO Metropolitan Statistical
Area
3.9
12.1 %
683,044 SF
12.4 %
261,475 SF
3
Oklahoma City, OK
Metropolitan Statistical
Area
3.9
12.4 %
49,224 SF
12.1 %
35,752 SF

7. 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 %

8. Dropping Energy Prices
Good 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)

9. Dropping Energy Prices
Bad for energy companies, bad for office demand in energy markets.
Office markets with heavy energy
concentration include Houston,
Oklahoma City, Denver & Dallas.

10. Sentiment at Highest Level in 10 Years
University of Michigan Index of Consumer Sentiment

11. U.S. Retail Brokers Vacancy Rate Outlook*
*Q4 2014 Xceligent Advisory Board Market Pulse Survey
57% of retail brokers
expect that vacancy
rates will drop over the
next 6 months.

12. U.S. Retail Brokers Lease Rate Outlook*
*Q4 2014 Xceligent Advisory Board Market Pulse Survey
A majority of retail
brokers (70%) expect
lease rates to go up.
30% expect they will
remain steady.

13. U.S. Retail Brokers Describe the Market*
*Q4 2014 Xceligent Advisory Board Market Pulse Survey

14. Madison Retail Vacancy Stays Low
227,057 SF Absorbed in 2014

15. Will retail occupancies plummet as the
digital generation ages?

16. 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

17. What percent of millennials prefer
bricks-and-mortar shopping?
82
%
18
%
Bricks Online
82%
Source: Accenture, 2013

18. $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.

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

20. Future Trend: 3D Printing
A Headwind for Industrial & Retail
3D printer shipments forecasted to grow 10 times by 2017

21. Looking for Big Growth in Smaller Footprints
28 new Neighborhood
Markets last quarter.
170 to open this quarter.

22. Walmart US’s same-store
sales increased by 0.5%
last quarter.
Comp sales for
Neighborhood markets
grew by 5.5%
.

23. 227,267 SF of Industrial Absorbed in 2014
Vacancy rate remains at 4.8%

24. Madison Industrial Vacancy low
compared 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 Oklahoma
City
Austin Little Rock
Q4 2014 Industrial Vacancy Rates

25. U.S. Industrial Brokers Describe the Market*
*Q4 2014 Xceligent Advisory Board Market Pulse Survey

26. U.S. Industrial Brokers Vacancy Rate Outlook*
*Q4 2014 Xceligent Advisory Board Market Pulse Survey
Industrial brokers are bullish about
dropping vacancies.
57% of industrial brokers predict
vacancy rates will drop in the next
six months.
14% expect rates to drop to near-
record lows, up from 10% a year
ago.

27. Madison Office Vacancy Dropping Slowly
64,269 SF Absorbed in 2014.

28. Madison Office Vacancy Rates
on 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 Oklahoma
City
Madison Milwaukee Tulsa
Q4 2014 Office Vacancy Rates

29. U.S. Office Brokers Describe the Market*
*Q4 2014 Xceligent Advisory Board Market Pulse Survey

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

31. A Generational Shift for Office Space
Recruit 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 Malizia
Author, Preferred Office Locations
(Interview in Developments, Winter
2014)

32. 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.

33. LWP = Live Work Play
Pictured: Reston Town Center, Reston VA

34. Will every millennial be recruited by an
LWP employer?

35. Over 40% of
workers will be
“contingent” by
2020.
Contingent workers include
independent contractors,
freelancers & entrepreneurs.
(Forecast: Intuit)

36. This is bad for office demand.
Contingent workers don’t go to the office.
Or do they?

37. Future Trend: Contingent Workers
Flock Together

38. Future Trend: Contingent Workers Flock Together
Co-working spaces will absorb significant office vacancy.

39. What is this?

40. The new “Frozen” ride at Disney World?

41. It’s the office of the future!
According to Dutch researchers, anyway.
Future Trend??

42. Future Trend: Back to Privacy
The Open-Floorplan Backlash

43. U.S. Office Brokers Market Outlook*
*Q4 2014 Xceligent Advisory Board Market Pulse Survey
53% of office brokers
expect that the market
will remain about the
same for the next six
months.

44. 1,037 Multi-family units sold in 2014
Average unit price jumped from $45,454 to $60,094.

45. Dane County
Multi-family Sales
Totals Down and Up
2012 - $96.1 million
2013 - $52.3 million
2014 - $62.3 million

46. Dane County
Number of
Multi-family Sales
Declining
2012 - 65
2013 - 54
2014 - 44

47. Dane County bucks
the national trend:
U.S. multi-family
sales prices have
dropped, but overall
sales volume has
risen.

48. What did we learn?
jobs and income growing
expect 2015 growth in all CRE
sectors

49. a wave of contingent workers
coming soon to a Starbucks near
you
generational shifts transforming
CRE in all sectors

50. The More Real Estate Changes, the
More it Stays the Same
James Cook, National Director of Analytics, Xceligent
Contact me: jcook@Xceligent.com