In perhaps a sign that the southeastern Wisconsin commercial real estate market is nearing a peak in this cycle, members of the Commercial Association of Realtors Wisconsin are less bullish than they have been during the past three years, according to the annual poll of CARW members by BizTimes Milwaukee.
To be sure, CARW members are still optimistic. When asked, “What is your impression of the condition of the current commercial real estate market?” 63.5 percent of the 85 CARW members who responded to the survey said the market is “improving.” Only 36.5 percent said the market is “flat” and none described the market as “weak.”
While those are positive results, they pale in comparison to the overwhelmingly confident response CARW members gave in the survey for the past three years.
When asked the same question, 84 percent of CARW members described the market as “improving” in 2015; in 2014, 86 percent said the market was “improving;” and in 2013, 80 percent said the market was “improving.”
With 63.5 percent of CARW members in the 2016 survey saying the market is improving, sentiment is at its lowest level since the 2012 survey, when only 43 percent described the market as “improving.”
When asked if they believe the southeastern Wisconsin commercial real estate market will improve in 2017, 73 percent of CARW members said “yes.” An overwhelmingly positive response, but down from last year, when 88.5 percent of CARW members said the region’s commercial real estate market would improve in 2016. The year before that, 94.6 percent of CARW members predicted the region’s commercial real estate market would improve in 2015.
“I think (area commercial real estate brokers) are still very optimistic and bullish, but they are also are very realistic,” said CARW president and chief executive officer Tracy Johnson. “Still, there is a lot of movement in the marketplace. There is so much under construction. Our guys are so busy. No one is saying they are nervous.”
The capital markets for commercial real estate are becoming stagnant, according to CARW members responding to the survey. Only 43.5 percent described the capital markets as “improving,” while 53 percent said they are “flat” and 3.5 percent said they are “declining.” That is a much less optimistic outlook than last year, when 72 percent of CARW members said the capital markets were “improving” and only 28 percent said they were “flat.”
CARW members’ impression of CRE Market Conditions
The industrial market remains the strongest sector of the southeastern Wisconsin commercial real estate market, based on Xceligent data and the CARW survey results. Of those surveyed, 73 percent said the area’s industrial market is “improving.” The region’s industrial market had a vacancy rate of 4 percent in the third quarter, down from 4.9 percent a year ago. The region absorbed 819,932 square feet of industrial space in the quarter and 3.76 million square feet of space for the first three quarters of the year.
However, CARW members are less optimistic about southeastern Wisconsin’s industrial market than they were last year, when 83 percent said the market was “improving.”
CARW members also have become far less optimistic about the area’s retail market than they were a year ago. For the 2016 survey, only 48 percent said the market is “improving,” while 46 percent said it is “flat” and 6 percent said it is “declining.” Last year, 81 percent said the retail market was “improving.”
That decline in the retail outlook comes despite a lot of positive activity in the region’s retail real estate market. The retail vacancy rate was at 7 percent in the third quarter, down from 8.1 percent a year ago, according to Xceligent. The region absorbed 504,407 square feet of retail space in the third quarter and absorbed 829,404 square feet of space for the first three quarters of the year.
CARW members are more optimistic about the office market, but less so than last year. Of those surveyed, 52 percent said the area’s office market is “improving,” 43.5 percent said it is “flat” and 5 percent said it is “declining.” Last year, 64 percent said the area’s office market was “improving.”
Xceligent data shows the area’s office market is improving. The region’s office space vacancy rate was at 16.8 percent in the third quarter, down from 18.4 percent a year ago, 19.1 percent two years ago and 20.6 percent three years ago. The region’s office market absorbed 150,722 square feet of space in the third quarter, and has absorbed 626,945 square feet of space for the first three quarters of the year.
In an attempt to gauge the concerns of CARW members, the survey asked which real estate sector in the area was most in danger of being overdeveloped. The responses were: apartments, 70.6 percent; hotels, 11.75 percent; office space, 9.4 percent; retail space, 2.35 percent; industrial space, 1.2 percent; none, 4.7 percent.
