Optimism grows among commercial real estate professionals

For the second year in a row, Milwaukee-area commercial real estate professionals are overwhelmingly optimistic about the state of the marketplace, according to the results of the annual Commercial Association of Realtors Wisconsin member survey.

The 2013 survey showed that CARW members were far more optimistic than in previous years, and the 2014 survey results show that CARW members have grown even more bullish.

Asked, “What is your impression of the condition of the current commercial real estate market?” nearly 86 percent of CARW members said “improving,” 12 percent said “flat” and only 2 percent said “weak.” In the 2013 CARW survey, 80 percent of the members said the market was “improving,” 19 percent said it was “flat” and 1 percent said it was “weak.”

CARW members are optimistic about 2015. When asked, “Do you believe the southeastern Wisconsin commercial real estate market will improve in 2015?” 94.6 percent said “yes” and only 5.4 percent said “no.”

CARW president and CEO Tracy Johnson said she was not surprised by the results of the survey.

“Business is booming right now,” she said. “(CARW members) are very excited. There’s a lot of buzz. They are doing deals everywhere. They’re very busy.”

 20142013201220112010
Improving86%80%43%35%32%
Flat12%19%49%29%40%
Weak2%1%8%36%28%

The capital markets for commercial real estate also continue to improve, CARW members say. In the 2014 survey, 77 percent said the capital markets are “improving,” 21.7 percent said they were “flat” and 1 percent said the capital markets are “declining.” In the 2013 CARW survey, 60 percent said the capital markets were “improving” and 40 percent said they were “flat.”

The industrial market remains the strongest sector of the southeastern Wisconsin commercial real estate market, based on Xceligent data and the CARW survey results. In the 2014 CARW survey, 90.2 percent of respondents describe the region’s industrial market as “improving,” 9.8 percent describe it as “flat” and none said it was “declining.” In the 2013 survey, 86.7 percent said the region’s industrial market was “improving.”

Xceligent data backs up the CARW survey results. The region’s industrial space vacancy rate fell to 5.53 percent in the third quarter, down from 6.68 percent a year ago. The region’s industrial space vacancy rate has been on a steady decline since peaking at 9.75 percent in 2008, during the Great Recession. The region’s industrial real estate market has absorbed 3.3 million square feet of space during the first three quarters of the year and has had 17 consecutive quarters of positive absorption.

The long struggling southeastern Wisconsin office real estate market is showing signs of improvement, CARW members say. In the 2014 survey, 53.3 percent said the region’s office market is “improving,” up from 42.7 percent in the 2013 survey, and 41.3 percent said the region’s office market was “flat,” down from 53 percent in 2013.

Xceligent data also shows some improvement in the region’s office real estate market. The region’s office space vacancy rate dipped to 19.09 percent in the third quarter, down from 20.59 percent a year ago. The market absorbed 104,270 square feet of office space during the third quarter and has now absorbed 556,653 square feet of space over the past year.

CARW members remain enthusiastic about the region’s retail real estate market, but less so than last year. In the 2014 survey, 70.65 percent of respondents said the region’s retail real estate market is “improving,” down from 77.3 percent a year ago, and 29.35 percent said the retail market is “flat,” up from 22.7 percent a year ago.

The region’s retail real estate market has been hurt this year by the closing of three AMF bowling centers, vacating a total of 135,000 square feet of space, and by the closure of Kmart stores in Hales Corners and Greenfield and a Sears store in Racine. Sears also plans to close its store at Bayshore Town Center in Glendale.

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