The commercial real estate market is facing several major headwinds: supply chain challenges and inflation driving up the cost of construction materials, the work-from-home trend established during the COVID-19 pandemic resulting in lower demand for office space, brick-and-mortar retail competing with online shopping, restaurant spaces that went vacant during the pandemic, and more.
Despite all of that, the industry’s wheelers and dealers in the Milwaukee area seem mostly upbeat about the market and its immediate future. That’s based on the results of BizTimes Milwaukee’s annual survey of members of the Commercial Association of Realtors Wisconsin (CARW). The survey results were unveiled at our annual Commercial Real Estate and Development Conference.
When asked what their current impression is of the commercial real estate market, 69% of CARW members said “improving.” That’s a huge improvement from last year, when only 23% said the market was “improving,” as new COVID-19 cases in Wisconsin reached a peak of 6,500 per day, compared to 2,800 per day recently.
Looking ahead, 85% of CARW members are predicting the southeastern Wisconsin commercial real estate market will improve in 2022 – again, an improvement from a year ago when 72% said they expected improvement in 2021.
However, the strength of the market varies widely by real estate type. Of the CARW members surveyed, 89.7% say the industrial market is “improving.”
“The industrial market, specifically distribution and warehousing, is the strongest we have ever witnessed in Wisconsin,” one survey respondent said.
But the office market is in much worse shape as work-from-home practices have put a significant hit on office space demand. Only 22% of CARW members surveyed say the local office market is “improving,” 45.6% describe it as “flat,” and 32.4% say the office market is “declining.”
Also, 39.7% of CARW members surveyed said office space is the most over-developed real estate sector in the region.
The good news for the area’s office market is that bleak outlook is an improvement from a year ago when 54.5% of CARW members said it was “declining” and only 4.5% said it was “improving.”
Like many segments of the economy, the area’s commercial real estate industry is facing huge challenges but also opportunities in some areas, including obviously the industrial market as well as the housing market.
“CRE has never faced so many headwinds from so many challenges – labor force quality and quantity, high construction costs, increasing interest rates in the not-too-distant future, uncertain federal tax changes, etc.,” one survey respondent said. “At the same time, there are real needs for emerging uses, such as workforce housing (and) detached rental housing, that require developers to deviate from past business practices.”
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