Metro Milwaukee commercial real estate brokers have a less favorable outlook for the market this year, based on the results of BizTimes Milwaukee’s annual survey of members of the Commercial Association of Realtors Wisconsin.
About 65% of the surveyed brokers describe the current condition of the commercial real estate market as “flat.” That’s a similar response to last year’s survey.
But this year, 23% of the surveyed commercial real estate brokers said the market is “weak,” up from 15.5% last year. At the same time, only 11.4% describe the market as “improving,” which is down from 19.1% last year.
“Market is strong, not improving,” one survey respondent said. “Deals are still getting done, even though some are losing, others are winning.”
When asked if they believe the southeastern Wisconsin commercial real estate market will improve next year, only 43% said “yes,” but that’s an improvement from last year’s survey when only 39.3% said “yes.”
The Federal Reserve raised its benchmark interest rate 11 times in a year in a half, in an attempt to cool inflation, but held the rate steady in September and again on Nov. 1. The higher interest rates have driven up borrowing costs, making real estate projects more expensive and challenging.
When asked about the condition of capital markets for commercial real estate, most of the surveyed CARW members, 55.7%, said they are “declining,” 40.5% said they are “flat” and only 3.8% said they are “improving.” But that’s an improvement from last year when 70.2% said the capital markets were “declining” and only 25% said they were “flat.”
Brokers’ outlook for the local office real estate market continues to slide as work-from-home and hybrid work arrangements continue to hurt demand for office space. Of those surveyed, 53.2% said the local office market is “declining,” up from 45.2% last year. Only 34.2% said the local office market is “flat,” compared to 40.5% last year and only 12.7% said the local office market is “improving,” compared to 14.3% last year.
The metro Milwaukee office real estate market has a 16.8% vacancy rate and has had negative absorption of 138,000 square feet of space this year, according to CARW’s third quarter market report.
When asked which real estate sector in metro Milwaukee is most in danger of being over-developed, 25.2% said office space, which is an improvement from last year when 36.9% said office space. This year, apartments were the most popular choice at 41.8%, up from 29.8% in 2022, while 11.4% said industrial space and 8.9% said hotels.
“Current conditions regarding existing inventory of office space, especially downtown, and the cost of funds for investors to refurbish for new tenants and upgrading of systems to meet new standards will test the stability of existing ownership to adapt to the new paradigm, especially with the at-home employee mentality,” one survey respondent said.
Brokers have a more positive outlook of the local industrial real estate market, but not as positive as a year ago. When asked about the southeastern Wisconsin industrial market, most CARW members surveyed, 64.6%, describe it as “flat,” up from 50% last year, while 27.9% describe it as “improving,” down from 39.3% last year. However, this year only 7.6% said the local industrial market is “declining,” down from 10.7% last year.
The southeastern Wisconsin industrial real estate market has a 4.4% vacancy rate and has absorbed 1.6 million square feet of space this year, according to CARW’s third quarter market report.
CARW member outlook for the local retail real estate market is about the same this year as it was last year. Of those surveyed this year, 59.5% said the retail real estate market is “flat,” compared to 62% a year ago, 32.9% said the local retail market is “improving,” up from 27.4% a year ago and 7.6% said it is “declining,” down from 10.7% a year ago.
I-794 debate
For the second year in a row, CARW members were asked about the future of the I-794 freeway in Milwaukee and the idea – supported by some – of tearing down the freeway between downtown Milwaukee and the Historic Third Ward to open up land for development.
CARW members were more supportive of the idea last year, with 51.2% surveyed saying they supported it. This year, brokers are more undecided on the issue. Only 34.2% said they agree with tearing down I-794 between downtown and the Third Ward, while 24% said they disagreed, up from 22.6% in 2022, and 36.7% said they thought only minor modifications should be made to I-794, up from 17.9% in 2022.
“There is not enough information available and it is far too early to have this conversation,” one survey respondent said. “A comprehensive study, including traffic study, needs to be done before we can form an opinion. I think there could be a negative effect and office tenants may elect to move out of the (central business district) to get closer to interstate access, which could result in even more loss of retail and entertainment venues. I am undecided on the topic because I don’t consider a boulevard a logical solution to move the traffic volume at the speed it currently does. We have time to figure this out. There are development sites available downtown that aren’t in the 794 footprint.”
“I take 794 in the Third Ward every day and it needs to go,” another survey respondent said. “Converting the Park East Freeway into an at-grade boulevard worked great and created more developable land, tax base, and a more cohesive urban environment. The freeway divides the city with a lifeless, eerie space that doesn’t feel safe – a dead zone along prime downtown real estate. And why? Just to save a couple of minutes for us commuters? I bet it won’t add more than four minutes to a commute but will add infinitely to the quality of life of the city and its tax base.”
