In its year-end market report, released this week, Milwaukee-based commercial real estate brokerage The Dickman Company Inc. predicts that the southeastern Wisconsin industrial real estate market will improve in 2011.
Dickman Company predicts that the region’s industrial space vacancy rate, currently at about 8.6 percent, will decline in 2011 and that the market will have positive net absorption. Industrial space lease rates and transaction volume in the region is also expected to increase, Dickman Company said.
“While not quite a healthy market, we are definitely moving in the right direction and the industrial market is much better than it has been,” the Dickman Company report said. “While there may be a few bumps in the road, the value of real estate will continue to rise and vacancy rates will drop.”
In late 2010 there was an increase in real estate transaction volume in the region for industrial real estate and that trend should continue in 2011, Dickman Company says.
“Large leases and sales have been the bulk of the activity in the last 3-4 months,” the Dickman Company report said. “Larger businesses that held off on space have decided the time is right to move forward. They are taking advantage of owners who feel a need to lease the property at low rental rates or sell to finally relieve themselves of a vacant property.”
Some submarkets in the region, such as Oak Creek and Pewaukee, now have a shortage of large industrial space, Dickman Company says.
“When the economy slowed the two areas that remained steady were the areas around the airport and Pewaukee,” the report said. “These areas have few large available properties and have seen the most action in recent months.”
Industrial space rental rates dropped during the Great Recession, but now rental rates are rising again, Dickman Company said.
“In the last few years rental rates dropped considerably and developers could no longer afford to build a speculative property,” the report said. “Rental rates started to rise in the fourth quarter of 2010 and will continue to rise as the lack of space becomes more apparent as companies need to move. As it gets higher it will reach a point where new construction becomes viable. Prices of existing buildings have also started to increase and this should continue as lack of space may become an issue. We have seen rising rental rates as well as purchase prices and the owners have finally decided to be realistic on their values. This trend should continue in 2011 as prices continue to rise, making it easier to complete transactions.”
The capital markets for industrial real estate deals in southeastern Wisconsin are improving, the Dickman Company says
“Financial institutions have started to lend and solid companies with good cash flow are finding many banks willing to lend,” the report says. “SBA financing plays a part of this because the banks will have a government guarantee and the borrower has a fixed rate for a long period of time. It takes longer to finalize an SBA loan, but many borrowers choose this route because it is preferred by the banks.”
However, several banks have taken ownership of troubled properties, which they need to unload.
“Banks have become part of the industrial real estate market as they market troubled properties,” the Dickman Company report said. “Many of the properties that banks take back are difficult properties to sell and buyers tend to push the banks harder in negotiations. This will affect the market, but we believe bank owned properties will be phased out over the next 12-18 months as the economy improves.”
