The metropolitan Milwaukee office real estate market weakened during the third quarter with the market's vacancy rate rising to 16.8%, up from 16.5% during the second quarter, according to the Commercial Association of Realtors Wisconsin third quarter market report.
The metro Milwaukee office market had negative absorption of 290,809 square feet of space during the third quarter, meaning the total amount of office space occupied in the market declined by that much. Year-to-date, the metro Milwaukee office market has had negative absorption of 137,964 square feet of space.
The downtown Milwaukee central business district had an office space vacancy rate of 17.8% in the third quarter, down from 18% in the second quarter. Class A office space in the CBD had a 15.9% vacancy rate in the third quarter, up from 15.2% in the second quarter, according to the CARW report.
Class A office space in the downtown Milwaukee CBD had negative absorption of 46,548 square feet of space during the third quarter, but year-to-date the CBD has had positive absorption of 147,177 square feet of class A office space.
The class A market downtown is holding up better than the downtown class B office market, which has year-to-date negative absorption of 138,039 square feet of space and a vacancy rate of 18.9%.
"The flight to quality could not be truer, as Class A buildings still prove to be successful," said John Davis, office property specialist with Founders 3. "Buildings that are not well maintained or that do not have amenities continue to struggle.”
Office space vacancy in the suburbs rose from 15.4% in the second quarter to 16.2% in the third quarter. Vacancy for class A office space in the suburbs rose from 13.4% in the second quarter to 15.3% in the third quarter.
Year-to-date the suburban Milwaukee office market has had negative absorption of 147,102 square feet of space.
Some notable deals gave the softening market a boost during the third quarter, said Ben Anderson, vice president of Colliers | Wisconsin.
"With many companies embracing the hybrid work model nationally, causing a need for less, more flexible office real estate, we’ve seen some firms locally buck that trend by making long term commitments in the market," Anderson said. "The most notable example is Baird, which signed a 5-year expansion and lease extension at the U.S. Bank Building for 456,000 square feet across 21 floors. Annex Wealth Management took nearly 50,000 square feet in Brookfield Lakes, and M3 Insurance will take 20,000 square feet at Irgens' new building at the Innovation Campus (in Wauwatosa). Additionally, we’re starting to see sublease spaces come off the market as tenant's existing leases come to an end making move-in ready spaces all that much more valuable."
