Commercial real estate brokers in southeastern Wisconsin are far less optimistic about the area’s real estate market than they were a year ago, according to the results of the annual survey by BizTimes Milwaukee of members of the Commercial Association of Realtors Wisconsin.
This year, 70 CARW members participated in the survey, which has been conducted every year since 2010.
When asked their impression of the current real estate market, about 53% of CARW members said it is “improving,” 47% said it is “flat” and none said it was “weak.”
That is the lowest percentage of CARW members describing the current market as “improving” since only 43% said so in 2012. Last year, 74% said the market was improving.
When asked if they believe the region’s commercial real estate market will improve in 2020, 61.4% of survey respondents said “yes.” That’s way down from last year when 88.3% of respondents to the CARW survey predicted that the market would improve in 2019.
Based on the survey results, area commercial real estate brokers’ optimism has fallen across all sectors of the industry.
When asked their impression of the capital markets for commercial real estate, 45.7% said they are “improving” (down from 58.4% a year ago), 52.9% said they are “flat” and 1.4% said they are “declining.”
The biggest concern is for the area’s retail market. Only 24.3% of the CARW survey respondents said it is “improving,” down from 42.9% last year. This year, 52.9% said the area’s retail market is “flat” and 22.9% said it is “declining.”
Retail real estate is facing major challenges as online shopping has transformed retail and dramatically shifted consumer shopping habits. In recent years, the region has attracted several new retail developments, including 84South in Greenfield, The Corners of Brookfield and The Corridor in Brookfield.
However, some older shopping centers have lost anchor tenants and been forced to make big changes. Brookfield Square recently added a Movie Tavern theater complex and a Whirlyball entertainment center. Southridge Mall in Greendale and Bayshore Town Center in Glendale each have dozens of vacancies. The owner of Bayshore recently began a major redevelopment project for that mall.
Despite the construction of new office buildings in downtown Milwaukee, CARW members are becoming less optimistic about the office market as well. Of those responding to the survey, only 34.3% said the area’s office market is “improving,” down from 49.4% a year ago. This year, 61.4% said the area’s office market is “flat” and 4.3% said it is “declining.”
According to CARW’s third quarter market report, the vacancy rate for the Milwaukee area office market dipped from 12.7% during the fourth quarter of 2018 to 11.9% during the third quarter of 2019. The market absorbed more than 400,000 square feet of office space during the third quarter, the report says, in part because tenants like ProHealth Care and Milwaukee Tool purchased office buildings for their own use.
Currently, there is more than 1 million square feet of office space under construction in the Milwaukee area, including the 25-story, 380,000-square-foot BMO Tower and the 11-story, 153,000-square-foot Huron Building in downtown Milwaukee.
The industrial market remains the strongest commercial real estate sector in southeastern Wisconsin, yet CARW members’ optimism for it is also in decline. While 72.9% of survey respondents said the area’s industrial market is “improving,” that’s down from 89.6% a year ago.
The area’s industrial market has a 3.8% vacancy rate, it absorbed 710,000 square feet of space in the third quarter and has absorbed 2.5 million square feet of space year-to-date, according to the CARW market report.