Commercial real estate professionals turn bullish

Milwaukee-area commercial real estate professionals are far more confident about the current state of the marketplace than they had been in previous years, according to the results of the annual Commercial Association of Realtors Wisconsin (CARW) member survey.

Asked, “What is your impression of the current commercial real estate market?” 80 percent of CARW members said “improving.” That is a huge increase from the 2012 CARW member survey when 43 percent said the market was “improving.” In 2011 only 35 percent said the market was “improving” and in 2010 only 32 percent said it was “improving.”

Only 1.3 percent of the respondents to the 2013 survey described the current commercial real estate market as “weak.” In 2012, 8 percent of survey respondents described the market as “weak.” In 2011, 36 percent of the survey respondents described the market as “weak.”

Most CARW members are optimistic about 2014. When asked, “Do you believe the southeastern Wisconsin commercial real estate market will improve in 2014?” 89.3 percent said “yes,” 10.7 percent said “no.”

“I think (the survey results) are very similar to what we’re hearing from the brokers,” said CARW president Jim Villa. “They’re very bullish, very positive. There are some good-sized deals happening.”

CARW members also say the capital markets are improving for commercial real estate. In the 2013 survey, 60 percent said the capital markets are “improving,” 40 said the capital markets are “flat” and none said the capital markets are “declining.” In 2012 42.7 percent of survey respondents said the capital markets were “improving.” In 2011 only 18 percent said the capital markets were “improving.”

The industrial market is the strongest sector of the southeastern Wisconsin commercial real estate market, according to the CARW survey respondents. In the 2013 survey, 86.7 percent of respondents describe the region’s industrial market as “improving,” 13.3 percent say it is “flat” and none said the region’s industrial market is “declining.” In 2012 71.3 percent of survey respondents said the industrial market in the region was “improving.”

The CARW and Xceligent third quarter market report supports the survey respondents’ confidence in the industrial market. In the third quarter the market had 1.4 million square feet of positive absorption, the 14th consecutive quarter of positive absorption. The market has absorbed 16 million square feet of space since the second quarter of 2010, according to Joe Doyle of Xceligent. The region’s industrial space vacancy rate has been on a steady decline since peaking at 9.75 percent in late 2008 and is now down to 6.0 percent, according to Xceligent.

CARW members are significantly more optimistic about the region’s retail real estate market this year. In the 2013 survey, 77.3 percent of respondents described the region’s retail real estate market as “improving,” 22.7 percent described it as “flat” and none described it as “declining.” In 2012, 53.3 percent of survey respondents said the region’s retail market was “improving,” 42.7 percent said it was “flat” and 4 percent said it was “declining.”

The southeastern Wisconsin retail real estate market has had six consecutive quarters of positive absorption and the vacancy rate is at 7.7 percent, according to Xceligent. Several major retail developments are in the works in the region including the Mayfair Collection project in Wauwatosa, which is under construction and will include Nordstrom Rack and Sak’s Fifth Avenue Off 5th stores; plans for a Nordstrom department store at Mayfair Mall in Wauwatosa; and The Corners project planned in the Town of Brookfield, which will be anchored by a Von Maur department store.

CARW members are also more optimistic about the office market. In the 2013 survey 42.7 percent of respondents described the region’s office market as “improving,” 53 percent described it as “flat” and 4 percent described it as “declining.” In the 2012 survey only 23.3 percent described the region’s office market as “improving,” 64.7 percent described it as “flat” and 12 percent described it as “declining.”

The region’s office market has posted positive absorption for the first three quarters of 2013 and the vacancy rate has dipped from 21.6 percent at the end of 2012 to 20.6 percent, according to Xceligent.

Confidence in the region’s office market could be bolstered by Northwestern Mutual Life Insurance Co.’s plans to build a $450 million, 32-story, 1.1-million-square-foot office tower at its downtown Milwaukee corporate headquarters campus.

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