The State of the Retail Market

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The State of the Retail Market

• Duane Debelak, Vice President
• The Appraisal Resource Group, Inc.
• 225 E. Mason St., Suite 402
• Milwaukee, WI 53202

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Per Capita Disposable Income
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Consumer Expenditures in Billions of Dollars
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Consumer Expenditures In Billions of Dollars
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Annual Retail Industry SalesIn Billions of
Dollars

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Milwaukee Metro Retail Growth

• 2006

• 2007

• 900,000 square feet of retail space delivered.

• 1.1 million square feet of retail space to be
  delivered.

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Metro Growth Areas

• Grafton at Highway 60 and I-43 (Costco, Kohls,
  Michaels, Best Buy)
• Menomonee Falls/Germantown near Highway 45 and
  County Line Road (Best Buy)
• Delafield at I-94 and Highway 83
• Oak Creek along Howell Avenue (Woodmans)
• Brookfield (Brookfield Square Outlots)
• Glendale (Bayshore Lifestyle Center)

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Future Growth Areas

• Grafton/Saukville (Steinhafels, Menards,
  Wal-Mart Super Center)
• Waukesha (Wal-Mart Super Center, Target, Lowes)
• Oconomowoc (Pabst Farms)
• Retailers looking for sites in Waukesha County
  include Woodmans and Costco

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Lifestyle CentersFive Mile Radius

• Bayshore Town Center Glendale, WI

• Greenway Station Middleton, WI

• Population of 309,764
• Average Household Income of 59,145
• Over 27,000 Households have an Income over
  75,000

• Population of 89,291
• Average Household Income of 84,297
• Over 17,000 Households have an Income over
  75,000

Pabst Farms 5 Mile Radius has Population of
38,067 Average Household Income of 97,539 About
7,000 Households have an Income over 75,000
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Retailers Looking to Expand

• Woodmans
• Costco
• Target
• Aldi
• Lowes
• Sendiks
• Wal-Mart
• Menards

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PWC Retail Cap Rate History

• 3rd Quarter 2000

• 3rd Quarter 2007

• Average of 9.77

• Average of 7.20
• Decline of 257 Basis Points in the Past Seven
  Years
• Decline of 16 Basis Points in the Past Year

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2007 Low Cap Rate

• 6.33 Walgreens in Columbus, WI
• (typical new net lease Walgreens overall rate
  is 6.0 to 6.5 with 25 year guarantee)
• Seller - Developer
• Buyer - Madison Investor

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2007 High Cap Rate

• 11.22 Mid-aged small regional mall on east side
  of Green Bay, WI
  
• Seller Trust for Deceased
  Developer/Investor
• Buyer East Coast Real Estate Group

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Third Quarter 2007Transaction Activity

• Average Capitalization Rate of 7.27
• Average Overall Rate Down 11 Basis Points From
  Second Quarter 2007
• Average Overall Rate Up 15 Basis Points From
  Third Quarter 2006

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Third Quarter 2007PWC Investor Survey

• Average Capitalization Rate of 7.20 for
  Institutional Grade Retail Properties
• Average Capitalization Rate of 8.65 for
  Non-Institutional Grade Retail Properties

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• Over the past five years, owners of retail real
  estate have enjoyed substantial value increases
  for two primary reasons
• 1) Compression in Overall Rates
• 2) Increase in Net Operating Income
• However, the outlook for 2008 is less favorable

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Increase in E-CommerceAs of 2nd Quarter of 2007

• E-Commerce Sales up 20.7 from 2nd Quarter 2006
• Total Retail Sales up 3.8 from 2nd Quarter 2006
• E-Commerce Sales Accounted for 3.1 of Total
  Retail Sales as of 2nd Quarter of 2007

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For Potential Developers

• For Smaller Retail Projects, do more than just a
  Demographic Ring Study
• Make Sure Your Site has Good Access and Exposure

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Conclusion

• WATCH OUT FOR OVER SUPPLY