Milwaukee area office market shows improvement

After years of stagnation the Milwaukee area office real estate market is finally showing signs of improvement. The metro area’s office market had 132,223 square feet of positive absorption in the first quarter as the region’s vacancy rate fell from 20.4 percent in the fourth quarter of 2013 to 19.6 percent, according to the latest market report from Xceligent and the Commercial Association of Realtors Wisconsin.

The first quarter performance followed up on a healthy fourth quarter for the area’s office market when more than 150,000 square feet of space was absorbed. The area’s office market has absorbed 307,000 square feet of space during the last year, according to Xceligent.

Class A office properties in the region had 98,033 square feet of absorption in the first quarter and the vacancy rate for class A office properties has fallen from 14.15 percent to 12.28 percent in the last year, according to Nathan Winkel of Xceligent.

The most noteworthy office space absorption announced in the first quarter was Reader’s Digest Association Inc.’s plans to move the offices of its Enthusiast Brands division from Greendale to the Schlitz Park office complex in downtown Milwaukee, according to the Xceligent report. The move will bring 200 employees to Schlitz Park, and will fill 54,000 square feet office space in the Bottlehouse buildings in the complex.

The improved office market is good news for the owners of area office buildings, like the Schlitz Park complex, and for developers that plan to build new office buildings, including Wauwatosa-based real estate development firm Irgens, which plans to build a 17-story 358,000-square-foot building at 833 E. Michigan St. in downtown Milwaukee. Construction of that project could begin soon.

Meanwhile, the region’s industrial market also continues to absorb more space, according to the Xceligent report. The region’s industrial market absorbed 712,400 square feet of space in the first quarter, the 16th consecutive quarter of positive absorption for the market.

However, the region’s industrial space vacancy rate remained flat in the quarter at 6.12 percent, as new construction is adding more space to the market. The first quarter absorption was down from more than 1.5 million square feet of absorption in the fourth quarter of 2013. The largest industrial space absorption in the first quarter was the completion of a 425,000-square-foot distribution center in Sturtevant for United Natural Foods.

The region’s retail real estate market had a rough start to the year with negative absorption of 272,363 square feet of space in the first quarter as the vacancy rate rose from 7.7 percent in the fourth quarter of 2013 to 8.32 percent. The region’s retail market was hurt in the first quarter by the announcement that Kmart stores in Hales Corners and Greenfield and a Sears store in Racine would be closed.

However, the recent opening of the 260,000-square-foot first phase of the Mayfair Collection development in Wauwatosa should boost the region’s retail real estate market in the second quarter, said CARW president Jim Villa. Mayfair Collection tenants include Nordstrom Rack, Saks Fifth Avenue OFF 5th, Dick’s Sporting Goods, Old Navy and Ulta Beauty stores.

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