New hotels will open downtown in 2013

Two new hotels will open in downtown Milwaukee this year, where another new hotel opened in late 2012. Meanwhile, construction will continue this year on yet another new hotel near downtown.

In November, a 127-room Hilton Garden Inn hotel opened in the Loyalty Building northwest of Broadway and Michigan Street. The hotel was developed by Rosemont, Ill.-based First Hospitality Group Inc. The building, originally constructed by Northwestern Mutual Life Insurance Co. as its corporate headquarters, was most recently a sparsely occupied office building.

Downtown Milwaukee will add two more hotels in 2013. A 205-room Marriott Hotel at 323 E. Wisconsin Ave., which is being developed by Jackson Street Holdings, and the 90-room Brewhouse Inn & Suites Hotel, an independent boutique hotel that is being developed at the former Pabst brewery complex by Oregon, Wis.-based Gorman & Company.

In addition, construction will continue this year on the Forest County Potawatomi Tribe’s 20-story, 381-room hotel next to its Potawatomi Bingo Casino, located in the Menomonee Valley near downtown Milwaukee. That hotel is expected to open in 2014.

The opening of the Hilton Garden Inn, Marriott and Brewhouse Inn & Suites hotels will add 422 hotel rooms to the downtown Milwaukee market in less than a year. That will put pressure on the existing downtown hotels that will have to compete with the brand new rooms. Then next year the Potawatomi hotel will add another 381 rooms to the market. The hotel market in and near downtown Milwaukee had about 3,670 hotel rooms prior to the opening of the Hilton Garden Inn.

The slow but steady improvement of the national economy has led to a revitalized travel industry said hotel industry consultant Greg Hanis, president of New Berlin-based Hospitality Marketers International Inc. Nationally, leisure travel remained strong during the economic downturn and business and group travel is finally starting to recover, he said.

“Business travel is increasing. Group travel is increasing,” Hanis said. “People (in the travel industry) are feeling positive. There definitely is an upturn.”

The national increase in demand for hotel rooms could help the downtown Milwaukee hotel market absorb the new room supply.

Milwaukee Marriot Downtown

“Absorbing these new rooms this year might be made easier by the economy improving,” Hanis said. “I think the main core of hotels in Milwaukee is pretty stable and should not see any real negative impact from the new properties. The absorption rates of the new supply I think will be good. I can’t say there isn’t going to be some pressure, but overall I think the outlook is good.”

Brewhouse Inn & Suites

Retail

Big box store development in the Milwaukee area is making the region’s grocery market place increasingly competitive. And a few large mixed-use developments are in the planning stages with yet to be determined groundbreakings.

Walmart continues to grow its presence in the region. Walmart has opened several stores in the area in recent years and more are on the way. Walmart will open Supercenter stores, which include grocery departments, this year in Greendale, South Milwaukee and West Milwaukee. Walmart also is working on plans for Supercenter stores in New Berlin and Caledonia and smaller grocery Neighborhood Market stores in Waukesha and Mt. Pleasant.

Janesville-based Woodman’s Markets, a chain of large discount grocery stores, is building a 243,753-square-foot store at 1600 E. Main St. in Waukesha that will open this year.

Grand Rapids, Mich.-based Meijer Inc. is working on plans for several big box grocery and general merchandise stores, most about 192,000 square feet, in the region. Meijer has announced plans for stores in Franklin, Grafton, Sussex, Wauwatosa and Kenosha. Sources say the company is also considering plans for a store in Oak Creek. Groundbreaking on some of the Meijer stores could occur this year.

A few major retail development projects are being planned for the region.

Chicago-based HSA Commercial Real Estate plans to build a 250,000-square-foot retail development called The Mayfair Collection at Burleigh Street and Highway 45 in Wauwatosa. The project would be anchored by a Nordstrom Rack, Dick’s Sporting Goods and Ulta stores. HSA is seeking commitments from additional tenants before it can break ground.

The Marcus Corp. is still working on its plans for the mixed-use The Corners development at Bluemound and Barker roads in the Town of Brookfield. Marcus is still negotiating a tax incremental financing (TIF) deal for the project with local officials. The project, which is similar to Bayshore Town Center in Glendale, would have 380,000 square feet of retail space and 150 apartments. A 140,000-square-foot Von Maur store would be the anchor tenant.

Wispark LLC, the real estate development division of Wisconsin Energy Corp., plans to build a mixed-use town center style development called Drexel Town Square on the 85-acre former Delphi plant site southwest of Howell and Drexel avenues in Oak Creek. A Meijer store could be the anchor tenant for the project, according to several sources.

Industrial

The Milwaukee region’s industrial market is one of the strongest in the nation. The vacancy rate has fallen steadily since the Great Recession to 6.5 percent, according to Xceligent. That is the lowest vacancy rate for the region since 2006. The region’s industrial market has had 11 consecutive quarters of positive absorption, according to Xceligent.

Despite the strong fundamentals of the region’s industrial market, deal velocity has been slow as many industrial tenants have been reluctant to pull the trigger on new leases or sales, said James T. Barry III, president of Cassidy Turley Barry. However, signs are pointing to improved velocity this year, he said, as some political uncertainties that have been hanging over the economy are getting cleared up.

“I think the fiscal cliff deal did provide probably a little bit more certainty to companies,” Barry said. “(And) the elections are over.”

The region’s vacancy rate will likely continue a slow and steady decline this year and absorption should remain positive, Barry said. That could put upward pressure on the cost of industrial real estate in the region.

“We’ll probably start to see some upward pressure on prices and rates,” Barry said. “That could spark some interesting development.”

But any new industrial development will likely be build-to-suit projects, Barry said. Banks are still reluctant to finance speculative developments, despite the dwindling amount of available industrial space in the region, he said.

Office

The metro Milwaukee office market continues to languish with a vacancy rate of about 21 percent, according to Xceligent.

The office market needs significant improvement in employment to recover, Barry said.

However, the lack of new office building construction in the region in recent years should result in office space absorption if the economy continues to improve, said Lyle Landowski, a partner with Colliers International|Wisconsin. The metro Milwaukee office market had positive absorption of a 58,000 square feet of space during 2012, according to Xceligent.

“Across the board I think we’ll see (positive) absorption in 2013,” Landowski said. “(But) I don’t think it’s going to be dramatic. We’re starting to get back some of what we lost during the (Great) Recession.”

The strongest office submarket in the region is the downtown east class A market, with a vacancy rate of about 9 percent, according to Xceligent. Some developers are working on plans for new office towers in that area of downtown Milwaukee, but need to secure tenants and financing to get their projects off the drawing board. Irgens has proposed an office building at 833 E. Michigan St. that would be anchored by the Godfrey & Kahn law firm. Developer Joel Lee, in a joint venture with Minneapolis-based Ryan Companies, is still working on his proposed Washington Square project just east of the Pfister Hotel.

A major office development that is expected to break ground this year is a 95,000-square-foot building that Zilber Property Group plans to build for ABB Inc. in the University of Wisconsin-Milwaukee Innovation Campus in Wauwatosa. ABB will have 350 employees, including more than 100 engineers and scientists at the building, which is the first private sector development announced for the Innovation Campus.

Meanwhile, two of Milwaukee’s most prominent corporations are working on plans for major new corporate headquarters office projects.

Northwestern Mutual Life Insurance Company plans to begin demolition work by the end of this year of the 16-story, 450,000-square-foot East Building on its downtown Milwaukee headquarters campus. The company plans to build a 30- to 35-story, 880,000-square-foot office building in its place. Construction of the new building is expected to begin in 2014.

Menomonee Falls-based Kohl’s Corp. is working on plans to build a new corporate headquarters on a 100-acre site in the Woodland Prime office park in Menomonee Falls. Under a tax incremental financing (TIF) agreement with the village the company must begin construction of the project by late 2015 and must complete the construction project in three years. Kohl’s has not indicated when it will begin construction on the project.

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