In recent years, developers have rushed to build speculative industrial buildings along the Interstate 94 corridor south of Milwaukee.
However, many of those buildings now have large amounts of empty space, according to Curt Pitzen, an industrial real estate broker for Brookfield-based NAI MLG Commercial who was one of the speakers at the recent office and industrial market update hosted annually by the Wisconsin chapter for the National Association of Industrial and Office Properties (NAIOP).
In the southern part of the metro area, the industrial space vacancy rate is 12.15 percent, up from 6.59 percent in 2005 and 8.67 percent in 2006. The large amount of speculative development in that area, especially in the I-94 corridor, has driven up the vacancy rate, Pitzen said. There is now more than 3.2 million square feet of vacant industrial space in the southern part of the metro area, he said, compared to 1.73 million square feet of vacant industrial space in the same area two years ago.
“A lot of that spec space is still available,” Pitzen said. “I think we can all agree that we are surprised that so much of the spec space is still available.”
This year, several tenants expressed interest in the available industrial space in the southern corridor, but many instead renegotiated with their current landlords, Pitzen said.
“There were and still are large tenants looking for space in the southern market,” he said.
Overall, the Milwaukee area has an industrial space vacancy rate of 10.31 percent, compared to 9.72 percent in 2006 and 10.05 percent in 2005.
In stark contrast to the southern submarket, a lack of new multi-tenant industrial space development in Waukesha County in recent years has resulted in a declining vacancy rate there, said Jeff Horn of Grubb & Ellis|Apex Commercial, another one of the speakers at the NAIOP annual update. The western submarket, basically consisting of Waukesha County, has an industrial space vacancy rate of 8.38 percent and had 724,000 square feet of net absorption last year, he said. The area’s industrial space vacancy rate was 9.95 percent in 2005 and 9.64 percent in 2006.
“We’re seeing little spec development in the western submarket,” Horn said. “As a result, we’re seeing absorption.”
Even within the western submarket, industrial development is shifting to the south, Horn said. Ace Industrial Properties plans to build a 486,161-square-foot distribution center for GE Healthcare on a vacant 35-acre site at the southwest corner of College Avenue and Moorland Road in Musekgo. The project is expected to break ground next year. WT New Berlin I LLC is building a 360,000-square-foot office and industrial building for Buyseasons Inc. at 5915 S. Moorland Road, New Berlin. The project will be completed next year.
In the northern part of the metro area, the industrial space vacancy rate is at 9.46 percent, down from 10.23 percent in 2006 and 10.79 percent in 2005, Pitzen said. There are still some sites in industrial parks in the northern part of the metro area that are available for new development, he said.
The central part of the metro area has a 12.21 percent industrial space vacancy rate, compared with 10.24 percent in 2006 and 13.24 percent in 2005, Horn said. The vacancy rate will rise next year to between 19 and 21 percent as half of the former Tower Automotive property comes on the market as a redeveloped, multi-tenant facility, he said.
Office market overview
Overall, the Milwaukee area multi-tenant office market has a vacancy rate of 18.26 percent, up from 16.32 percent in 2006 and 15.58 percent in 2005, according to NAIOP.
The office space vacancy rate in Waukesha County is at 14.07 percent, compared to 12.57 percent in 2006 and 15.47 percent in 2005, said Tim Brunow of NAI MLG Commercial and another one of the speakers at the NAIOP event. Little office development occurred in the county this year. There are ample amounts of available spaces in the county for small office space users, but there are few large amounts of space available for large office space users. There are only three blocks of vacant office space of more than 40,000 square feet in the county, he said.
The lack of large available office spaces could result in development of new office buildings in Waukesha County. However, there are few sites suitable and available for office development, Brunow said.
Wauwatosa-based Irgens Development Partners LLC is planning to develop a 110-acre office park that would be called Fox Run Corporate Park, southwest of Watertown Road and Springdale Road and north of I-94 in Pewaukee. If developed, the corporate park could support 600,000 square feet of office space, Brunow said.
The Irgens project could be the location of the area’s next great office park, Brunow said. Other possible locations are Franklin and Oak Creek, which are fast growing communities with large amounts of available land and government officials willing to provide infrastructure to facilitate development, he said.
The southern portion of the metro area has an office space vacancy rate of 8.97 percent, down from 9.41 percent in 2006 and 11.29 percent in 2005, Brunow said.
The central submarket, which includes downtown Milwaukee, Wauwatosa and West Allis, has an office space vacancy rate of 20.84 percent, up from 18.49 percent in 2006 and 15.79 percent in 2005, said Lyle Landowski an office space broker with Inland Companies and a speaker at the NAIOP event.
Despite the high vacancy rate, there are bright spots to the office market for the central part of the metro area, Landowski said.
Summit Place in West Allis, a 650,000-square-foot office complex built in a redeveloped portion of the former Allis-Chalmers manufacturing complex, which has lured tenants from other buildings in the region, is now virtually full.
The class A office space vacancy rate in downtown Milwaukee is only 11 percent. The vacancy rate for the 12 most important multi-tenant office buildings in downtown Milwaukee declined from 15.5 percent at the end of 2006 to 13.25 percent at the end of October, 2007, Landowski said.
Several downtown buildings added new tenants, or had tenants expand this year filling vacant space, Landowski said. The Milwaukee Center, 111 E. Kilbourn Ave., is now 95 percent leased and recently had M&I Bank lease an additional two floors with nearly 40,000 square feet of space. The 789 N. Water Street building is now 94 percent leased. Plaza East, 330 E. Kilbourn Ave., is now 93 percent leased and had Associated Bank lease 20,000 square feet of space this year.
The falling vacancy rate should result in lease rate increases this year for downtown class A office space, Landowski predicted.
The northern part of the metro area has a 19.69 percent office space vacancy rate, up from 17.5 percent in 2006 and 16.75 percent in 2005, Landowski said. The vacancy rate has been driven up by the addition of 170,000 square feet of office space at Bayshore Town Center, most of which remains vacant. In addition, Metavante plans to vacate a large amount of space in 2008 at Two Park Plaza, 10850 W. Park Place, Milwaukee, he said.
“Who is going to fill these large blocks of space?” Landowski said. There likely will not be any new multi-tenant office space construction next year in the northern submarket, he said.
The first Lowe’s store in Waukesha County could open in the 500,000-square-foot Shoppes at Fox River retail development that Opus North Corp. plans to build on the 55-acre former Fleming Cos. property northwest of Sunset Drive and Chapman Drive. A Target store was previously announced for the development and plans for the project also show a Lowe’s store, according to real estate sources. “They’re talking to Target and Lowe’s,” said Michael Hoeft, Waukesha City Planner. “I think those two have signed letters of intent or something but they haven’t signed a contract.” Jay Craig, senior real estate director for Opus North said he “can’t confirm or deny” the Lowe’s rumors. “We haven’t got any firm commitments from anybody (including Target),” he said. “But, it’s going well. We have a lot of interest from retailers.” The demolition and then construction project for the retail development should begin next spring, Craig said. Mooresville, N.C.-based Lowe’s Companies Inc. is a chain of home improvement stores with 1,380 locations in the U.S.
Milwaukee-based Towne Investments plans to build a 200,000-square-foot speculative industrial building on a vacant 13 acre site, just north of the Dairyland Greyhound Park dog track, at the southwest corner of 52nd Street and 104th Avenue.
Taco Bell plans to build a new, 3,158-square-foot restaurant at the northwest corner of 122nd Avenue and 75th Street. Taco Bell is building the restaurant to replace its location at 12230 75th St., near I-94 and Highway 50, which will be acquired by the state Department of Transportation to rebuild the interchange as part of its larger plans to rebuild and expand I-94 from the state line to Milwaukee County.
Milwaukee-based JBK Properties plans to redevelop the former Jewel Osco grocery store at 3850 N. 124th St. and plans to fill the space with three new tenants, an Aldi grocery store, a Petsmart store and a yet to be named third store. Essen, Germany-based Aldi Group has 8,100 discount grocery stores worldwide. Phoenix-based PetSmart Inc. is the biggest pet food and supplies retailer in the U.S. with 900 stores in the U.S. and Canada.
Bric Associates plans to build a Walgreens store at 6020 W. Brown Deer Road. Deerfield, Ill.-based Walgreen Co. has 6,000 stores including dozens in the metro Milwaukee area.
Developer Pat Watts plans to build a 13,800-square-foot multi-tenant industrial building at 204 Hallberg St. on the east side of Delavan near I-43.
Kuehn Enterprise LLC plans to build a 5,795-square-foot distribution center for the Milwaukee Journal Sentinel on a vacant lot at the intersection of Mercury Drive and Janesville Road in the Muskego Industrial Park.
James Petr, the owner of Milwaukee PC, plans to build a 4,000-square-foot, multi-tenant commercial building on a vacant 1.5-acre site at 10910 N. Port Washington Road. Milwaukee PC would occupy about half of the building. The project still needs approval from city officials.
Commercial Real Estate Transactions
Executive Search Partners leased 1,965 square feet of office space in the McGeoch Building at 322 E. Michigan St., Milwaukee.
Snap Fitness leased 3,000 square feet of retail space at N69 W25055 Indian Grass Lane, Unit C, Sussex, from Indian Grass Holdings LLC.
CB Richard Ellis
Hanbai Inc. leased 3,601 square feet of retail space at 15455 W. Bluemound Road, Brookfield, from B.R. Brookfield Commons No. 1 & No. 2 LLC.
RedPrairie leased 9,908 square feet of office space at 20825 Swenson Dr., Brookfield, from Liberty Property Trust.
All American Graphics Ltd. leased 33,642 square feet of industrial space at N84 W13420-13480 Leon Road, Menomonee Falls, from Cygnet Woods LLC.
Humber, Mundie & McCleary LLP leased 3,425 square feet of office space and Loeb & Herman S.C. leased 3,570 square feet of office space in the Chase Tower at 111 E. Wisconsin Ave., Milwaukee, from BREOF BNK Midwest LLC.
Payless ShoeSource Inc. leased 2,948 square feet of retail space at 6400 N. 76th St., Milwaukee, from Metropolitian Mill Road Venture.
Payless ShoeSource Inc. leased 3,600 square feet of retail space at 3473 S. 27th St., Milwaukee, from Southgate Marketplace.
Verizon Wireless Personal Communications LLP leased 2,605 square feet of retail space at 2711 N. Mayfair Road Wauwatosa, from Midland 3521 LLC.
Visual Systems Inc. leased 20,000 square feet of industrial space at 8301 W. Parkland Ct., Milwaukee, from TJM Parkland Court LLC.
Briggs-Ficks Securities LLC leased 1,985 square feet of office space in 250 Plaza at 250 E. Wisconsin Ave., Milwaukee, from East Milwaukee Operating Associates LP.
Solid Rock Deliverance Church Ministries leased 467 square feet of office space in the Granville Professional Building at 9001 N. 76th St., Milwaukee, from Granville Professional Bldg LLP.