Growing downtown Milwaukee office tenants in need of more space could provide an anchor tenant that kick-starts construction of a new office tower.
That’s the assessment of Ned Purtell, principal of Milwaukee-based RFP Commercial Inc., who was one of several speakers at the recent Year in Review Symposium hosted by the Wisconsin chapter of the Appraisal Institute.
Several proposed office building developments for downtown Milwaukee have been stuck on the drawing board in recent years because they have been unable to land an anchor tenant. But growing downtown firms in need of more space could soon provide an anchor tenant for a new building, Purtell said.
“Next year, I think there will be new construction downtown,” said Purtell, who spoke about the Milwaukee area office market at the symposium. “There are a couple of law firms that need more space. Artisan Partners is growing like a weed, and their building is full. I think somebody is going to build.”
Purtell declined to name the two law firms he was referring to. But one of them could be Godfrey & Kahn S.C., which in 2005 considered moving to a new building but instead decided to stay put in the M&I Bank building at 780 N. Water St. However, at the time, managing partner Rick Bliss said the firm would eventually have to move. Bliss could not be reached for this story.
Artisan Partners LLC is one of the fastest-growing mutual funds firms in the nation and occupies space in the 875 E. Wisconsin Ave. building in downtown Milwaukee.
The downtown Milwaukee office market, “Isn’t as bad as it looks,” Purtell said.
The vacancy rate for multi-tenant class A and B office buildings in downtown Milwaukee was at 17.69 percent at the end of the third quarter, down a tad from the 18.09 percent vacancy rate of the previous year, Purtell said.
The downtown Milwaukee office market is improving as some downtown firms are growing and are expanding their office space, including the Hall, Render, Killian, Heath & Lyman P.C. law firm; Stark Investments; Associated Bank and Grant Thornton LLP. In addition, Infinity HealthCare plans to move next year from Mequon to downtown Milwaukee and will occupy 62,000 square feet of space in the Chase Tower at 111 E. Wisconsin Ave.
In the suburbs, some office space sub-markets are healthy, but others are struggling, according to Purtell.
The Brookfield submarket is particularly strong with a vacancy rate of 12.52 percent for class A and B office space, Purtell said. The low vacancy rate could result in new office building construction in the Brookfield area, but there is a lack of suitable sites there for new office buildings, he said.
“At 12 percent vacancy, it’s time to build,” Purtell said.
The Mayfair Road area in Wauwatosa has a 15.71 percent vacancy rate for class A and B office space, compared to 17.69 percent a year ago, and West Allis has an office space vacancy rate of 10.31 percent, Purtell said.
The north shore office market is struggling with a 22.97 percent vacancy rate, up from 21.91 percent last year, Purtell said. Columbus, Ohio-based Steiner + Associates has lowered the lease rates for the slow to fill office space at Bayshore Town Center in Glendale from about $16.50 per square foot to as low as $13.95 per square foot in an attempt to attract tenants, he said.
The Park Place submarket, on the far northwest side of Milwaukee, has an office space vacancy rate of 20.49 percent, compared with 20.36 percent a year ago, Purtell said.
Some large suburban office space users that are in the market and may relocate include, according to Purtell:
• Town of Brookfield-based RedPrairie Corp., which is in the market for 110,000 square feet of office space.
• Waukesha-based American Transmission Company LLC, which is looking for 100,000 square feet of office space.
• Mequon-based Doral Dental USA LLC, which is looking for 70,000 square feet of office space.
Some suburban counties with smaller amounts of office space have low vacancy rates, which could mean they will attract new office building development, said Steven Stiloski, president of Jackson-based Commercial Property Consultants Inc. and another one of the speakers at the symposium. Office space vacancy rates are at 4.7 percent in Ozaukee County, 4.3 percent in Racine County, 5.9 percent in Sheboygan County, 9.1 percent in Walworth County and 12.8 percent in Washington County, he said.
For retail space, the Milwaukee area added about 900,000 square feet of space in 2006 and 1.1 million square feet of space in 2007, said Duane Debelak, vice president of Appraisal Resource Group Inc. Areas that added the most new space include Grafton, Menomonee Falls, Delafield, Oak Creek, Brookfield and Glendale, he said.
Janesville-based Woodman’s Food Markets Inc., which is building a grocery store in Oak Creek, and Issaquah, Wash.-based Costco Wholesale Corp., which built a store in Grafton, are looking for sites in Waukesha County, Debelak said.
Bayshore Town Center in Glendale, which opened last year, appears to be a success so far, he said. However, Bayshore has several new restaurants that have added a total of 1,500 restaurant seats to the marketplace. That is putting pressure on some restaurants in the north shore area, and even some of the Bayshore restaurants are struggling, Debelak said.
Bayshore is one of only two true lifestyle centers in the state. The other is in Middleton. Another lifestyle center is planned for the regional mall portion of the Pabst Farms development in Oconomowoc. Compared to the markets of other lifestyle centers, the Oconomowoc area has a high per household income but a low total population of about 38,000 in a five mile radius.
“That’s a lot less than you want to have for a lifestyle center,” Debelak said. “I really question if the lifestyle center (at Pabst Farms) will go forward.”
Pabst Farms executives have insisted that it will. However, Chicago-based General Growth Properties Inc., one of the nation’s largest mall operators, dropped its plans to develop the regional mall at Pabst Farms. Pabst Farms is looking for another national developer to partner with for that portion of the project, and is in negotiations with three developers, including Beechwood, Ohio-based Developers Diversified Realty Corp., according to Thad Nation, spokesman for Pabst Farms.
Bluemound Road remains the premier retail corridor in southeastern Wisconsin, but there are four or five vacant spaces of more than 17,000 square feet on the road and “just about every shopping center has double-digit vacancy,” said Dan Rosenfeld, a broker with Mid-America Real Estate and another speaker at the symposium.
“It’s clearly a tenant driven market,” he said.
The demand for condominiums in downtown Milwaukee is still healthy, but there is an oversupply in the market, said Blair Williams, owner of Milwaukee-based Wired Properties and another speaker at the symposium.
The number of downtown Milwaukee condo sales over $150,000 rose from 379 in 2004, to 471 in 2005, peaking at 785 in 2005, and is on pace for 610 this year, Williams said.
“If not for 2006, 2007 is the best year ever for the downtown Milwaukee condo market,” he said. “The demand is good, it’s the supply that is causing issues. We have condos in Milwaukee that have been on the market for over a year. We may have irrational values assigned to certain condos.”
For the downtown Milwaukee apartment market, occupancy rates and rents are rising. Supply is falling as several apartment complexes, such as The Blatz and Landmark on the Lake, have been converted to condos, Williams said.
Demand for housing will remain strong as the baby boomer generation continues to age and look for a downsized and more exciting place to live and their children, the even larger echo boom generation, are looking for places to live as young professionals, Williams said. Despite the problems with the national housing market, most consumers still prefer to own their homes and urban living continues to grow in popularity as the average family size is shrinking.
“I believe very strongly that good products in good locations will continue to sell in downtown Milwaukee,” Williams said. “The next six months are going to be tough. But I think we will eventually get to a level of equilibrium with condominiums in Milwaukee, which we have never had. This is the first cycle for the condominium market in Milwaukee. We need to get through a cycle to know what equilibrium is.”
Kenosha
Grading work began recently for the PrairieWood Corporate Park development southwest of I-94 and Highway Q in Pleasant Prairie. The 200-acre corporate park is being developed by Oakbrook, Ill.-based CenterPoint Properties. The site is directly south of 500 acres purchased by Abbott Laboratories as a future development site. PrairieWood is expected to attract a mix of office buildings, manufacturing facilities and distribution centers. When fully built out it could have 200,000 to 400,000 square feet of office space and 1 million to 2 million square feet of industrial/distribution space.
Waukesha
Carrollton, Tex.-based L.A. Fitness International LLC plans to open a fitness center in the 43,000-square-foot former Steinhafels building at 2315 E. Moreland Blvd. The building has been vacant since 2004 when Steinhafels opened its massive 425,000-square-foot facility built on 60 acres southwest of Highway F and I-94 in Pewaukee, which includes a 250,000-square-foot distribution center, a 120,000-square-foot showroom, corporate offices and a community room. The only L.A. Fitness location in Wisconsin is at Bayshore Town Center in Glendale.
West Allis
Christopher Zirbel plans to open Café Grill ‘N Games Espresso Coffee House at 7105 W. Greenfield Ave. in downtown West Allis. The space was formerly occupied by Fairgrounds coffee shop and is currently occupied by Marge’s Costumes. The costume shop’s lease expires in March. Zirbel’s café will serve baked goods, panini grilled sandwiches, pizza, hot dos, brats, pretzels and popcorn. Games and entertainment will be provided such as karaoke, painting, poetry readings and ticket redemption games similar to those at Chuck-E-Cheese. Outdoor seating will be provided.
Crescent Electric plans to build a 10,000-square-foot warehouse addition to its facility at 11303 W. Theo Trecker Way. The company is purchasing a 0.87-acre vacant property from We Energies for the expansion.
Hartland
PDC Midwest Inc., an architecture, interior design and construction firm, has outgrown its current office space at 700 Walnut Ridge Dr. and is building a new office building in the Bark River Commerce Center, just down the road from its current location. PDC will occupy a majority of the 15,000-square-foot building and will lease about 3,500 square feet. The company plans to move into the new building at the beginning of the new year.
Leases
Boerke Company
Snap Fitness leased 3,050 square feet of retail space in Autumn Grove Plaza at 12880 W. Bluemound Road, Elm Grove, from Towne Investments.
CB Richard Ellis
ZW Capitol Partners Inc. leased 2,972 square feet of office space at 250 W. Coventry Ct., Glendale, from LV Enterprises LLC.
Hillside Metal Products leased 16,800 square feet of industrial space at W185 N11521-11537 Whitney Dr., Germantown, from Hennes Services Inc.
Mahmoud Inc. leased 4,936 square feet of retail space at 1010 W. Layton Ave., Milwaukee, from Bouraxis Properties (Layton) LLC.
Chipotle Mexican Grill of Colorado LLC leased 2,250 square feet of retail space at 2711 N. Mayfair Road Wauwatosa, from Midland 3521 LLC.
Starbucks Corp. leased 1,785 square feet of retail space at 2751 N. Mayfair Road, Wauwatosa, from Midland 3521 LLC.
Fed Ex Kinko’s Office & Print Services Inc. leased 1,718 square feet of retail space at 2711 N. Mayfair Road, Wauwatosa, from Midland 3521 LLC.
Tazinos 1101 LLC leased 3,954 square feet of retail space at 8201 S. Howell Ave., Oak Creek, from Demco Wisconsin 1 LLC.
Gerald Nell
Brookfield Auto Parts Inc. leased 10,000 square feet of industrial space at 3655 N. 126th St., Unit E, Brookfield, from Sunset Investment Co.
HSA Commercial Real Estate
BBJ Linens leased 4,221 square feet of space at 9060 N. Deerbrook Trail, Brown Deer.
The Sisters of Sorrowful Mother renewed its lease of 3,683 space at 9056 N. Deerbrook Trail, Brown Deer.
Forward Dental renewed its lease of 8,207 square feet of space at 9088 N. Deerbrook Trail, Brown Deer.
Mid-America Real Estate
Snap Fitness Inc. leased 3,050 square feet of space at Autumn Grove Plaza, 12850-12960 W. Bluemound Road, Elm Grove, from Towne Realty Inc.
American General Financial leased 1,266 square feet of space at Burlington Retail Center, 2088 Milwaukee Ave., Burlington, from Highway 36/W Associates.
Head Start leased 7,018 square feet of space in Cudahy Center at 5851 S. Packard Ave., Cudahy, from Equity Investment Group.
Subway leased 1,536 square feet of space at North 76th Street and Good Hope Road in Milwaukee from Spectrum Development.
Wine Styles leased 1,600 square feet of space in Brookfield Fashion Center at 16750-17000 W. Bluemound Road, Brookfield, from Urban Retail Properties.
Starbucks Coffee Co. leased 1,767 square feet of space at 1028 N. 14th St., Sheboygan, from Alliance Development.
NAI MLG Commercial
En Mode Design leased 2,142 square feet of retail space in the Silvernail Village Shopping Center in Waukesha from KPK Eagle Investments.
KOA Wisconsin Inc. leased 5,020 square feet of space in Falls Commerce Center I at N56 W13445 Silver Spring Dr., Menomonee Falls, from Brookfield Real Estate Opportunity Fund.
Morrow Equipment Company leased 1,400 square feet of space at 406 Travis Lane in Waukesha from Milwaukee Street Partners LLC and Waucom Partners LLC.
Lake & Country Marine leased 16,000 square feet of space at 635 Cardinal Lane, Hartland, from Progressive Properties LLC.
Primerica leased 5,000 square feet of office space at 19601 W. Bluemound Road, Brookfield, from 19601 Bluemound.
Capitol Survey & Engineering leased 3,502 square feet of space at 20875 Crossroads Circle, Brookfield, from KPK Investments.
Regency Janitorial Services leased 920 square feet of space at 1110 N. Old World Third St., Milwaukee, from River Front Plaza LLC.
First MidAmerica Investments Corp. leased 6,218 square feet of space at 2675 N. Mayfair Road, Wauwatosa.
WOW Logistics Company leased 55,000 square feet of space at 1501 E. Wisconsin St., Delavan, from Zoroghlian LLC.
Frank Pasternack & Associates S.C. leased 1,789 square feet of space at 19601 W. Bluemound Road, Brookfield, from 19601 Bluemound LLC.
Healing Touch Massage and Sussex Chiropractic S.C. leased 2,000 square feet of space at N63 W23524 Silver Spring Dr. from Millikin Homes of Milwaukee Inc.
GT Creative LLC leased 1,095 square feet of space at 200 N. Jefferson St., Milwaukee, from Atid Investments LLP.
Dr. Thomas F. Voelker leased 3,498 square feet of space at 3228 W. Turnberry Oak Dr., Waukesha, from Summit Square LLC.
RFP Commercial
Imperial Lithographing Corp. leased 34,000 square feet of space at 2485 Commerce Dr., New Berlin, from First Industrial Realty Trust.
Sales
Boerke Company
Bank Mutual purchased 1.05 acres at 8400 W. Forest Home Ave., Greenfield, from Pteris Gardens & Floral Design LLC.
Dickman Company 544 South 1st Street LLC purchased 61,000 square feet of industrial space at 544 S. 1st St., Milwaukee, from 211 W. Seeboth Building LLC.
Never Better Investments LLC purchased 82,400 square feet of industrial space at W220 N507 Springdale Road, Pewaukee, from Springdale Road Building LLC.
Ahn Jae Lee purchased 20,628 square feet of retail space at 2972-74 S. 13th St., Milwaukee, from M&M Property Management LLC.
Mid-America Real Estate
Alliance Development purchased 7,069 square feet of space at 2320 E. Moreland Blvd., Waukesha, from Robert W. Meurer Revocable Trust.
NAI MLG Commercial
New Berlin Land Company purchased 1.8 acres on Small Road and Moorland Road in New Berlin from Citizens Bank of Mukwonago.
Goodwill Industries of Southeastern Wisconsin purchased 13.5 acres at 140 E Rawson Road, Oak Creek, from Darlene Kramer and Way and Gail Heiderich.
Renaissance Plaza LLC purchased 2.61 acres along Renaissance Boulevard in Sturtevant from MLG/JLP Twenty East Limited Partnership.
New construction
Selzer-Ornst Co., Wauwatosa, was selected by The Boelter Companies to complete the expansion and remodeling of their warehouse and showroom facility on Port Washington Road in Glendale.
Briohn Building Corp., Brookfield, recently completed the design and construction of three projects: a new, 73,500-square-foot building for Seville Flexpack Corp. at 9940 S. Ridgeview Dr., Oak Creek; a new, 35,156-square-foot building for Caleffi-North America at 3880 West Milwaukee Road, Milwaukee; and a 20,100-square-foot second floor tenant space for Avicom Properties LLC at 2120 Pewaukee Road, Waukesha.
