With a glut of abandoned old factory space remaining for sale or lease in southeastern Wisconsin, the 2004 industrial real estate market can only get better.
At least, that’s the viewpoint of James T. Barry III, president of the James T. Barry Co.
"The economic recovery will continue, and the industrial real estate business cycle will enter its recovery stage, which means that the vacancy rate will drop, net absorption will increase and new construction will increase, including speculative construction," Barry stated in his Fourth Quarter 2003 Survey, which will soon be published by Colliers.
"The fourth quarter of 2003 proved to be a turning point for the industrial real estate market in Milwaukee. Vacancy rates stabilized as new space began to be absorbed again. More importantly, the level of demand for space increased in the fourth quarter, with more showings, letters of intent and tangible offers. While the basis for this observation is somewhat anecdotal, solid results should be observable in the first quarter of 2004," Barry stated.
Grubb & Ellis/Boerke Co. agreed that the local industrial real estate market will improve in 2004.
"Companies who were on the fence early in 2003 about their expansion plans are just now reacting to current below-market pricing (combined with continuing low interest rates). Activity should pick up in 2004. Heightened demand brought on by improving economic conditions will most likely be met by an increase in net absorption numbers, higher lease rates and higher purchase prices," the company stated in its new 2004 Real Estate Forecast for the Great Lakes States.
Among Barry’s observations for the local industrial real estate market:
— It is still a "user-driven" market for properties less than 50,000 square feet.
— Large industrial buildings of 100,000 square feet or more are still "sitting" on the market, including the former J.C. Penney warehouse, the Kohl’s bakery, the Olson warehouse, the Rubin warehouse and the former Wisconsin Color Press, West Bend Co., Taylor Electric, Kasch Toy, Velvac, Schreiber, Metso, Norlite and Regal Ware plants.
— Multi-story industrial buildings, such as the former Pabst Brewing Co. brewery and the Scott Paper Co. plant, continue to be converted to other uses. The Pabst site is being transformed into the Pabst City project of retail, entertainment, office and housing development. The Scott Paper site will be the new home of Columbia St. Mary’s Hospital’s headquarters and offices.
— New development, some of it speculative, is starting to occur. Roundy’s Inc., for example, plans to move its distribution center from Wauwatosa to the massive Pabst Farms project in Oconomowoc.
— Large national investors, such as CenterPoint Properties Trust, First Industrial Realty Trust Inc. and Liberty Property Trust, continue to show interest in the Milwaukee market.
— The region has a shortage of well-located, developable industrial land. "Most new developments are taking place on the periphery of the market. This puts upward pressure on the price of ‘in-fill’ land sites and the price per square foot of existing buildings and will continue to do so," Barry said.
Barry predicts the market’s Class A industrial space will fill up at a faster pace in 2004.
"There will be upward pressure on lease rates and prices per square foot across the board for industrial real estate, with one very important exception: industrial buildings over 100,000 square feet will continue to suffer," Barry said.
The hottest industrial real estate submarkets in the region will be along the Highway 45 and 124th Street corridors and the intersection of highways 164 and J in Waukesha County, in addition to Oak Creek and Milwaukee’s Menomonee River Valley, Barry said.
Feb. 6, 2004 Small Business Times, Milwaukee