The latest quarterly performance numbers in Milwaukee-area commercial real estate sing a familiar song in the pandemic era: The office and retail markets are hurting while the industrial sector remains strong.
The Commercial Association of Realtors Wisconsin, REDIComps
today released the Milwaukee commercial real estate market report
for the first quarter.
It showed the Milwaukee office market started the year with 200,000 square feet of negative absorption, marking the third straight quarter of absorption decline. Vacancy rates rose to 16.7%.
The area's retail real estate market also remains among "the hardest-hit sectors," the report states, though no market data was provided for that sector.
Meanwhile, the area's industrial real estate market started the year with nearly 451,400 square feet of positive absorption in the first quarter.
However, there are signs of optimism for all sectors, even if their first-quarter performances were not stellar, according to CARW.
"While Q1 numbers show higher vacancy rates and lower absorption, there is a great deal of optimism amongst practitioners in the market," Tracy Johnson, president and chief executive of CARW, said in a statement. "As vaccine rollouts continue and the supply chains loosen up, many expect the third and fourth quarters of 2021 to reflect recovery."
The office market vacancy rate has increased for five consecutive quarters. Vacancies in multi-tenant properties were higher than the overall rate, at 20.8% in the first quarter.
The Third Ward-Walkers Point area had the largest gain of positive absorption, at 73,000 square feet. That was due to the delivery of Michels Corp.'s 81,000-square-foot R1VER office building in the Harbor District.
The west side of downtown Milwaukee had the largest drop in absorption, at 94,000 square. This was due to ManpowerGroup vacating 80,000 square feet. The company said this week it may need less office space when workers return this fall, which could free up a floor of its downtown Milwaukee headquarters
The market in Pewaukee was hit hard after Madison-based American Family Insurance vacated 75,000 square feet. Employees are working from home, and the company has put its Pewaukee building up for sale due to its expected move to downtown Milwaukee. However, the downtown office project's future is a bit uncertain. Work is on pause for the time being as American Family figures out what its workplace setup will be following the pandemic.
Six office projects are under construction that will deliver another 610,000 square feet of office space. The largest is Milwaukee-based Irgens Partners LLC's Golf Parkway Corporate Center
in Brookfield, with 188,000 square feet slated for summer 2022 completion.
Joe Moritz of Colliers International | Wisconsin said the office market may have reached the low point last quarter, with growth coming thereafter.
"Smaller local and regional users, especially in the suburbs, continue to remain active, and many of the larger national and global groups are beginning to have leasing conversations," he said in a statement. "Both tour activity and deal velocity began to pick up at the end of Q1 and we now track the highest number of known tenants seeking space since the beginning of Q3 2019."
Industrial real estate in the area continued its boom period, a period of positive absorption for both single- and multi-tenant properties that reaches back two years. The first quarter overall vacancy was 4.3%, and for multi-family properties the vacancy stood at 12.3%.
Milwaukee County saw the strongest growth of industrial space positive absorption for the quarter, at 360,000 square feet. This was largely due to Franklin-based Steele Solutions Inc. leasing 210,000 square feet in South Milwaukee
The single-largest lease for the quarter was Waukegan, Illinois-based Visual Pak Cos. leasing 472,000 square feet in Bristol
Waukesha County saw 276,000 square feet of negative industrial space absorption in the first quarter. this was due to Quad Graphics vacating 388,000 square feet of space.
More than 4.8 million square feet is under construction in the area for 19 industrial projects. Four new facilities were completed in the first quarter, delivering another 254,000 square feet.
"We have a very positive outlook for the industrial market in southeastern Wisconsin for the foreseeable future,” Michael Kleber, director of industrial leasing with Milwaukee-based Zilber Property Group, said in a statement. “We have seen increased activity with occupiers given the pent-up demand following a year of uncertainty. Companies are gaining confidence and are motivated to look towards long-term growth needs. Southeastern Wisconsin's industrial market continues to experience historically low vacancy rates. We predict this trend to continue due to robust demand coupled with escalating development costs."