Market ReportKalamazoo | Q4 2015 Year End

Office • Industrial • Retail • Multi-Family

1803 Whites Rd. Suite 2Kalamazoo, Michigan 49008269.353.0311 naiwwm.com

Wisinski ofWest Michigan

* 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.

* Source: NAIWisinskiofWestMI, CoStar Property®, & U.S. Bureau of Labor Statistics

SOUTHWEST MICHIGAN

OVERV IEWIn 2015 a combination of low unemployment rates, expanding industry across a variety of sectors, and rising sale prices/lease rates has created a favorable landscape for the Commercial Real Estate Market in Southwest Michigan. The Retail and Industrial Markets continued to exhibit tight vacancy rates, limited inventory and increased rent rates during the year. While the Office Market did not have many notable transactions in 2015, certain market fac-tors are indicating a more positive trend in 2016. Southwest Michigan’s Industrial Market showcased an 11.2% vacancy rate at year end 2015, down from 11.5% from the previous quarter. While some larger blocks of quality space opened up in the market in 2015, a percent-age were quickly absorbed by expanding manufacturers already in the marketplace. Interest in industrial product is very active in the Southwest Michigan market; however, a lack of quality product has been one of the issues facing this particular sector of the industry for several years now. This lack of inventory alongside steady demand and an absence of speculative development will keep vacancy rates low and rental rates appreciating over the next 12-18 months.

The Retail Market in Southwest Michigan, and particularly in Kalamazoo County, remains strong with the pri-mary corridors exhibiting very limited vacancy and rising rents. Limited vacant land in the primary corridors is forcing developers and occupiers to consider redevelopment opportunities of older product, particularly along the Westnedge corridor. Several national retailers have been looking for space along Westnedge and have been unsuccessful in locating viable sites. The Costco Development at Stadium Drive and US-131 is nearly full just 13 months from the grand opening.

Activity in the Office Sector was steady in 2015, primarily from existing tenants within the marketplace look-ing to expand or relocate to more attractive space. The new owner of the Mall Plaza in Downtown Kalamazoo announced a redevelopment to multi-family in 2016. This will lead to a displacement of tenants downtown and should translate to positive absorption in the 1st half of the year for the submarket.

These trends point to a continued lack of quality inventory in 2016, which will drive-up pricing & hopefully lead to new development. Yet, the memories of the Great Recession still linger in this market, and it seems developers remain cautious when it comes to speculative development.

2016

Total Employment Growth & Economic Trends12-month Percent Changes in Employment Office Square Footage per Employee By Industry

Based Upon All Tenants

The Unemployment Rate in West Michigan has decreased to 4.2%

Annual GDP growth of 2.5-3.5% in West Michigan has increased

Rent Rates have increased since the beginning of 2015

West MichiganIndustrial Submarket Statistics

Q4 Snapshot

Submarket Total RBATotal

Available SF

Vacancy Rate

Total AverageNNN Rate ($/SF/Yr)

Total Net Absorption

(SF)

Total Under Construction

SFKalamazoo County

Warehouse 5,234,108 860,982 16.45% $3.83/SF 47,201 102,000Manufacturing 16,335,284 1,108,993 6.79% $3.47/SF 200,800 -Flex 1,628,939 228,997 14.05% $9.79/SF 10,559 -Total 23,198,331 2,198,972 9.48% $5.69/SF 258,560 102,000Calhoun County

Warehouse 2,595,832 720,836 27.77% $2.89/SF 26,620 -

Manufacturing 15,378,145 654,764 4.26% $3.01/SF -158,066 300,000Flex 1,016,885 - - - - -Total 18,990,862 1,375,600 7.24% $2.95/SF -131,446 300,000Lakeshore

Warehouse 7,389,941 1,605,913 21.73% $2.63/SF 25,150 -Manufacturing 17,979,123 1,854,760 10.32% $2.28/SF 200,594 -Flex 1,126,729 346,605 30.76% $6.38/SF 8,000 -Total 26,495,793 3,807,278 14.37% $3.76/SF 226,544 -

Michiana

Warehouse 4,176,253 1,055,508 25.27% $2.29/SF - -Manufacturing 4,834,346 325,543 6.73% $3.35/SF - 100,000Flex 455,864 9,864 2.16% $6.50/SF - -Total 9,466,463 1,390,915 11.38% $4.04/SF - 100,000

Methodology: All Industrial building types are included, including Warehouse, Flex / Research Development, Distribution Manufacturing, Industrial Showroom, and Service Buildings, in both single-tenant and multi-tenant buildings, including owner-occupied buildings.

Kalamazoo County

Calhoun County

Michiana

Lakeshore

West MichiganRetail Submarket Statistics

Q4 Snapshot

Submarket Total RBATotal

Available SFVacancy

RateTotal Average

NNN Rate ($/SF/Yr)Total Net

Absorption (SF)

Westnedge Ave.

Community 453,604 62,161 13.70% $12.10/SF -2,000Neighborhood 557,230 24,748 4.44% $14.47/SF 6,487Strip 182,477 21,062 11.54% $18.04/SF 5,170Total 1,193,311 107,971 9.05% $14.87/SF 9,657Gull Rd.

Community - - - - -

Neighborhood - - - - -Strip 78,111 5,700 7.29% $13.50/SF -Total 78,111 5,700 7.29% $13.50/SF -West Main

Community - - - - -Neighborhood 24,302 - - - -Strip 65,026 7,750 11.91% $15.06/SF -Total 89,328 7,750 8.67% $15.06/SF -

Stadium Dr.

Community 21,256 - - $19.00/SF -Neighborhood 5,869 - - - -Strip 59,459 4,480 7.53% $12.00/SF -Total 86,584 4,480 5.17% $15.50/SF -

Methodology: The retail market report includes community, neighborhood, and strip retail buildings within each of the defined submarkets. For definition of product type, please see below.

Westnedge Ave.

Stadium Dr.

West Main.Gull Rd.

KalamazooOffice Submarket Statistics

Methodology: The office market report includes office buildings within each of the defined submarkets.

Excluded are government buildings and institutional properties.

Q4 Snapshot

Submarket Total RBA

TotalAvailable

SF

Vacancy Rate

Total Average Rate

($/SF/Yr)

Total Net Absorption

(SF)

Total Under Construction

(SF)

DowntownClass A 177,000 32,086 18.13% $18.00/SF - -Class B & C 2,918,977 128,693 4.52% $13.09/SF -1,900 -Total 3,095,977 160,779 5.19% $15.54/SF -1,900 -Suburban Kalamazoo Class A 677,706 41,906 6.18% $17.13/SF -6,194 -Class B & C 5,574,751 980,798 17.59% $9.90/SF 9,620 -Total 6,252,457 1,022,704 16.35% $13.51/SF 3,426 -Source: CoStar

Downtown

Suburban Kalamazoo

By The Numbers

$-

$3.00

$6.00

$9.00

$12.00

$15.00

$18.00

$21.00

$24.00

$27.00

$30.00

2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4

Average Triple Net Rental Rates by Sector

Triple Net Rental Rates Office Triple Net Rental Rates Retail Triple Net Rental Rates Industrial

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4

Average Vacancy Rates by Sector

Vacancy Rates Office Vacancy Rates Retail Vacancy Rates Industrial

(200,000)

(100,000)

-

100,000

200,000

300,000

400,000

500,000

2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4

Average Absorption & Delivery by Sector

Office Retail Industrial RBA Office RBA Retail RBA Industrial

Neighborhood Center

Provides for the sale of convenience goods (food, drugs, etc) and personal services (laundry, dry cleaning, etc.)

Net Rental Rate

A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other related costs.

Price/SF

Calculated by dividing the price of a building (either sales price or asking sales price) by the Rentable Building Area (RBA).

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.

Rental Rate

The annual costs of occupancy for a particular space quoted on a per square foot basis.

SF/PSF

Square foot/per square foot, used as a unit of measurement.

Strip Center

A strip center is an attached row of stores or service outlets managed as a coherent retail entity, with on-site parking usually located in front of the stores. Open canopies may connect the storefronts, but a strip center does not have enclosed walkways linking the stores.

Under Construction

Buildings in a state of construction, up until they receive their certificate of occupancy. In order for CoStar to consider a building under construction, the site must have a concrete foundation in place.

Vacancy Rate

All physically unoccupied lease space, either direct or sublease.

Absorption (Net)

The change in occupied space in a given time period.

Available Square Footage

Net rentable area considered available for lease; excludes sublease space.

Average Asking Rental Rate

Rental rate as quoted from each building’s owner/management company. For retail, a triple net rate is requested.

Community Center

A shopping center development that has a total square footage between 10,000 - 350,000 SF. Generally will have 2-3 large anchored tenants, but not department store anchors. Community Center typically offers a wider range of apparel and other soft goofs than the Neighborhood Center. Among the more common anchors are supermarkets and super drugstores.

Deliveries

Buildings that have their certificate of occupancy and are allowed to be moved into by the tenant/purchaser.

Existing Inventory

The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned,under construction or under renovation.

Flex Building

A type of building designed to be versatile, which may be used in combination with office (corporate headquarters), research and development,

quasi-retail sales, and including but not limited to industrial, warehouse, and distribution uses. A typical flex building will be one or two stories with at least half of the rentable area being used as office space, have ceiling heights of 16 feet or less, and have some type of drive-in door, even though the door may be glassed in or sealed off.

Industrial Building

A type of building(s) adapted for a combination of uses such as assemblage, processing, and/or manufacturing products from raw materials or fabricated parts. Additional uses include warehousing, distribution, and maintenance facilities.

Multi-Tenant

Buildings that house more than one tenant at a given time. Usually, multi-tenant buildings were designed and built to accommodate many different floor plans and designs for different needs.

Definitions

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1803 Whites Rd. Suite 2Kalamazoo, Michigan 49008269.353.0311 naiwwm.com

Wisinski ofWest Michigan

Office • Industrial • Retail • Multi-Family

Kalamazoo TeamMarc Tourangeau, MBA, Associate Broker269 207 3072marct@naiwwm.com

Dane Davis, Associate Broker269 217 4498daned@naiwwm.com

Kara Schroer, Realtor Associate704 526 7574karas@naiwwm.com

Jeremy Veenstra, Real Estate Advisor616 242 1105jeremyv@naiwwm.com

Joshua Jacobs, Associate Broker914 374 2694joshuaj@naiwwm.com