The downtown Milwaukee office space vacancy rate continues to improve, according to the third quarter office market report by Boston-based Colliers International, whose local affiliate is Milwaukee-based Colliers Barry.
The vacancy rate for the downtown Milwaukee office market fell from 13.6 percent to 13.1 percent during the third quarter, according to the Colliers International report.
However, the vacancy rate for class A office space in downtown Milwaukee rose from 8.5 percent at the end of the second quarter to 9.3 percent at the end of the third quarter, according to the report. Still, that’s an improvement over the 12.1 vacancy rate for class A downtown Milwaukee office space that Colliers reported at the end of the first quarter.
Nationally, the downtown office markets with the highest vacancy rates are Kansas City (22.0 percent), Dallas (21.3 percent) and St. Louis (20.1) percent, according to the Colliers report. Of the larger cities, the downtown office markets with the lowest vacancy rates are Charlotte, N.C. (3.1 percent), Midtown Manhattan (6.4 percent), Downtown Manhattan (7.4 percent), Midtown South Manhattan (7.4 percent), Washington D.C. (7.2 percent), Seattle (8.0 percent) and Miami (8.8 percent).
Filling smaller downtown Milwaukee spaces has been difficult, but several larger office space tenants (users of 50,000 square feet or more) in the suburbs are considering moving downtown, and some downtown tenants are considering relocating, said David Barry, a commercial real estate broker for Colliers Barry.
"I’m hearing rumblings from brokers and developers that there are a number of them looking downtown," he said. "Larger tenants are starting to look downtown because the space is available."
One example is Mequon-based Infinity HealthCare, which plans to move its headquarters to the Chase Tower at 111 E. Wisconsin Ave. in downtown Milwaukee. The company will bring about 150 employees downtown and will occupy about 62,000 square feet of space on floors 19-21 in the Chase Tower. Infinity currently leases about 30,000 square feet of space at 1035 W. Glen Oaks Lane in Mequon. The company’s space is spread out in a couple different buildings.
"It was hard for us to find 50,000 to 60,000 square feet of contiguous space in Mequon," Infinity HealthCare chief operating officer Gregory Cierlik.
Town of Brookfield-based RedPrairie Corp. has been considering a move downtown, said Neal Driscoll, director of leasing and development for Malvern, Pa.-based Liberty Property Trust’s Milwaukee office. Liberty Property Trust owns the building that RedPrairie currently occupies.
Cramer-Krasselt, a Chicago-based advertising and marketing firm, is an example of a downtown Milwaukee office tenant that is planning to relocate to another downtown location. The company plans to move out of its current downtown Milwaukee location at 733 N. Van Buren St., but earlier this year dropped plans to move to a new development in the Park East corridor and is looking for another downtown location. The company is looking for 50,000 square feet of office space.
The overall suburban Milwaukee office space vacancy rate rose from 10.6 percent at the end of the second quarter to 11.4 percent at the end of the third quarter, according to Colliers. The class A suburban office space vacancy rate rose from 11.4 percent at the end of the second quarter to 16.2 percent at the end of the third quarter.
The rise in the class A suburban office space vacancy rate was a result of a change in how the data is collected, Barry said.
"We’ve changed the way we had been looking at the market," he said. "We’ve taken some of the owner-occupied buildings out of the mix."
The suburban office markets with the lowest vacancy rates are Miami (7.1 percent), San Jose, Calif. (7.8 percent) and Orlando, Fla. (8.8 percent). The suburban office markets with the highest vacancy rates are Tampa, Fla. (33.2 percent), Cincinnati (20.6 percent) and Chicago (19.6 percent), according to the Colliers report.
According to Colliers International, the sales price for office space in downtown Milwaukee is about $225 per square foot and the sales price for office space in the suburbs is about $140 per square foot. The downtown Milwaukee office space cap rate (calculated by dividing net operating income by purchase price) is 7.50, and the suburban office space cap rate is 8.00.