The commercial real estate market in southeastern Wisconsin has been on a bull run for several years and members of the Commercial Association of Realtors expect that to continue in 2019, with more of them expressing optimism than a year ago, according to an annual survey of CARW members by BizTimes Milwaukee.
This year 77 CARW members responded to the survey, the same as in 2017.
Credit: Maredithe Meyer
When asked their impression of the current commercial real estate market in the area, 74 percent said “improving,” 24.7 percent said “flat” and 1.3 percent said “weak.” That is a noteworthy improvement from last year when 66 percent said the area’s commercial real estate market was improving. It is the strongest overall sentiment for the area’s CRE market by CARW members since 2015 when 84 percent said the market was improving.
CARW members are also very optimistic about how the market will perform next year. When asked if they think the region’s commercial real estate market will improve in 2019, 88.3 percent said “yes.” A year ago, 70 percent said they thought the market would improve during 2018.
CARW members are most optimistic about the region’s industrial real estate market, with 89.6 percent saying it is “improving,” up from 83 percent who said the same a year ago.
Data demonstrates the strength of the region’s industrial real estate market, which has a vacancy rate of just 4.2 percent, according to the latest market report from Cushman & Wakefield|The Boerke Company. Through the first three quarters of the year the region’s industrial real estate market absorbed 1.6 million square feet of space, compared to 1.9 million during the first three quarters of 2017, according to the report. During the third quarter there was 2.1 million square feet of industrial real estate under construction in the region, up from 906,000 a year ago, according to the report. Average asking rent is $4.63 per square foot, up from $4.59 a year ago.
However, CARW member sentiment for the office and retail markets is far less optimistic than their sentiment for the industrial market.
For the office market, 49.4 percent of CARW members say the market in southeastern Wisconsin is “improving,” which is up from 43 percent a year ago, 46.75 percent say the area’s office market is “flat” and 3.9 percent say the market is “declining.”
The region’s office market has a vacancy rate of 15 percent and absorbed 339,248 square feet of space during the first three quarters of the year, according to Cushman & Wakefield|The Boerke Company. The downtown Milwaukee office market has a vacancy rate of 14.5 percent and has absorbed 147,438 square feet of space during the first three quarters of the year, according to the report. The suburban office market has a vacancy rate of 15.3 percent and absorbed 191,810 square feet of space during the first three quarters of the year. Average rents are higher downtown at $23.47 per square foot, compared to $18.51 in the suburban market.
Several office building projects are planned or under construction in the area, with the most notable being the 25-story, 380,807-square-foot BMO Tower in downtown Milwaukee by Irgens. Its tenants will include BMO Harris and Michael Best & Friedrich. Plans were also announced earlier this year for a new $285 million corporate headquarters development for Komatsu Mining Corp. in Milwaukee’s Harbor District and a $100 million mixed-use development planned by Michels Corp. in Bay View, that would include a regional office for the company.
As for the region’s retail market, only 42.9 percent of CARW members surveyed describe it as “improving,” 41.6 percent say it is “flat” and 15.6 percent say it is “declining.” The retail real estate market continues to face challenges from numerous store closures as the retail industry shifts more toward online shopping. The liquidation of The Bon-Ton Stores Inc. earlier this year resulted in the loss of Boston Stores that anchored every regional mall in the region. Other recently announced store closure plans include a Target store in Greenfield, a Best Buy store in Grafton and Home Owners Bargain Outlet stores in Milwaukee and West Allis. However some retailers, like Mills Fleet Farm and Meijer, are expanding with several new stores recently opened, planned or under construction in the region.
When asked which real estate sector in the Milwaukee area is the most in danger of being over-developed, 52 percent of CARW members said apartments, 18.2 percent said hotels, 13 percent said office space, 5.2 percent said retail space, none said industrial space and 11.7 percent said “none.”
