The Milwaukee area’s industrial real estate market is outperforming the rest of the United States, according to the latest market report from Boston-based Colliers International.
At the end of the third quarter, the Milwaukee area had an industrial space vacancy rate of 7.8 percent, according to Colliers International, whose local affiliate is Milwaukee-based Colliers Barry.
The Milwaukee area’s industrial space vacancy rate is well below the national vacancy rate of 10.53 percent, according to the Colliers International report.
“In a down market we look pretty good,” said Jeff Horn, vice president, of Brookfield-based Grubb & Ellis|Apex Commercial. “It’s the same old line that we really get tired of hearing (about Milwaukee). ‘Well, we don’t go up as much as everybody else does, but we don’t go down as much as everyone else does either.’ There’s some truth to that.”
Milwaukee’s industrial space vacancy rate was the 8th lowest of the 55 markets tracked by Colliers. The only markets with lower industrial space vacancy rates are: Honolulu (4.6 percent), Los Angeles (5.4 percent), Orange County, Calif. (5.8 percent), Houston (6.7 percent), Seattle (7.0 percent), Indianapolis (7.4 percent) and Northern New Jersey (7.5 percent).
The markets with the highest industrial space vacancy rates, according to Colliers International, are: Raleigh, N.C. (23.0 percent), Phoenix (17.4 percent), Stockton/San Joaquin County, Calif. (16.8 percent), Baltimore (16.6 percent), Los Angeles – Inland Empire, Calif. (15.4 percent), Pleasanton/Walnut Creek, Calif. (14.8 percent), Little Rock, Ark. (14.6 percent), Las Vegas (14.3 percent) and Detroit (14.0 percent).
In another sign of the Milwaukee area industrial real estate market’s strength, the region’s vacancy rate stayed the same in the third quarter as it was in the second quarter, 7.8 percent, while the nation’s vacancy rate rose from 8.67 percent in the second quarter to 10.53 percent in the third quarter, according to Colliers International.
The biggest reason that Milwaukee’s industrial space vacancy rate is holding up so well is that the area did not have a large amount of speculative development before the recession, compared to other markets, said Colliers Barry president and chief executive officer James T. Barry III.
“We had a relatively low amount of speculative development, and the speculative development that we had, much of it was absorbed, even during the recession,” Barry said. “In other markets, particularly those in the west and the south, there was a lot of speculative development that occurred and that failed to be leased.”
Booming markets with rising rental rates attracted investors seeking a quick return who financed speculative developments in those boom markets instead of steady Milwaukee, Horn said. But many of those investors are hurting now that their buildings have large amounts of vacant space in overbuilt markets.
Previous recessions have resulted in major companies failing and dumping massive amounts of space on the market. But that has not happened in the Milwaukee area during this recession, Barry said.
“While companies are not growing, I think they are making do with the space they are in,” he said. “We haven’t seen any industrial users throw large amounts of industrial space onto the market like Allis Chalmers and Schlitz did in the 80s.”
Another reason that Milwaukee’s industrial vacancy rate is so low is that a number of old, obsolete industrial buildings have been demolished and others, such as the former Delphi plant in Oak Creek and the former Tower Automotive plant in Milwaukee’s central city have been taken out of statistical databases because they are no longer considered on the market for lease, Horn said. The former Delphi plant is expected to be torn down so the sight can be redeveloped for a mix of uses, primarily retail. The former Tower facility is also expected to be torn down to attract new development.
Other old industrial buildings have been transformed into other uses, particularly office space or residences, including several buildings in the Third Ward, Walker’s Point and the former Allis Chalmers plant in West Allis.
Despite the challenges that Wisconsin manufacturers have faced for years, there is still a large manufacturing sector in the Milwaukee area and the amount of quality space available for them to move to is limited, Horn said.
“If you are looking for functional space, it’s hard to find,” he said.
The industrial real estate market is much stronger in some parts of southeastern Wisconsin than in others.
According to the third quarter southeastern Wisconsin industrial market report by Milwaukee-based The Dickman Company Inc., Waukesha County has an industrial space vacancy rate of 5.6 percent, one of the lowest vacancy rates in the region.
Other than the Moorland Road corridor in Muskego and New Berlin there has been very little speculative industrial development in Waukesha County in recent years, Horn said.
A large vacant industrial space in Waukesha County was recently taken off the market when Towne Investments announced that it has purchased the 175,000-square-foot building at 12545 W. Westbrook Crossing, Menomonee Falls, from Bemis Manufacturing. Towne will remodel and add a 137,000-square-foot expansion to the building, which will be occupied by Actuant Corp. Actuant will move its corporate headquarters from Butler to the facility, and a new office building that will be built across the street.
Washington County (7.7 percent vacancy according to Dickman) and Ozaukee County (9.9 percent vacancy according to Dickman), have also had virtually no speculative industrial development in recent years, Horn said.
Milwaukee County is a mixed bag with some areas stronger than others, Barry said. The county has a 10.0 percent vacancy rate, according to the Dickman Company report.
A few years ago several speculative industrial developers were built near Mitchell International Airport. New development in the area stopped during the recession, and the buildings constructed a few years ago have slowly filled up with tenants, Barry said.
“The area around the airport has had some success,” he said.
Other strong parts of Milwaukee County include the Bradley Woods Industrial Park on the far northwest side of the city of Milwaukee and areas around the downtown area, including the Menomonee Valley, Barry said.
However, the central city remains weak for the industrial real estate market. Lack of access to the freeway and crime make the area unattractive to tenants.
“It’s a real challenge,” Barry said. “There are some buildings there that have been sitting vacant for a very, very long time.”
Spurred by sprawl from the Chicago area, speculative industrial space development has continued in Kenosha County and, to a lesser extent, Racine County. Kenosha County has a 9.7 percent vacancy rate and Racine County has a 5.6 percent vacancy rate, according to the Dickman Company report.
In Kenosha County, Ozburn-Hessey Logistics recently agreed to lease two buildings in LakeView Corporate Park in Pleasant Prairie, a 240,000-square-foot building at 8691 109th St. from Liberty Property Trust and a 51,540-square-foot building at 8330 107th St. from Towne Lakeview LLC.
“Kenosha (county) has had a lot of building, but they have also had a lot of deals,” Barry said.
