Real estate leaders see reasons for optimism amid pandemic-stricken office market

Milwaukee’s office market appeared to be on a roll prior to the COVID-19 pandemic. Optimism seemed to be running high, carried by new Class A buildings under construction and continued movement of some companies back to the central business district.

The pandemic brought things to a screeching halt last spring. And while activity is slowly picking up again, the market certainly hasn’t returned to what it was before COVID-19.

But industry experts see reason for optimism in the face of challenges. 

“I’m cautiously optimistic about the state of the office market at present,” said Jenna Maguire, office property specialist for Founders 3. “Sublease space coming online, construction costs on the rise and corporate announcements regarding future work-from-home or hybrid work policies will continue to impact the office market for the foreseeable future. However, all of these moving parts will still result in tenants completing lease transactions — either via downsizing, renewing in place or seeking flexible sublease opportunities.”

The state of the Milwaukee office market is one of two major topics to be discussed at this year’s annual BizTimes Media Commercial Real Estate and Development Conference on Nov. 18 at the Italian Community Center in Milwaukee. The other discussion will involve development hotspots and trends in the southeastern Wisconsin region. Andy Hunt from Marquette University will moderate.

In addition to Maguire, panelists will include Mark Irgens, chief executive officer of Irgens; Josh Jeffers, president and CEO of J. Jeffers & Co.; S.R. Mills, CEO of Bear Real Estate Group; Frank Cumberbatch, vice president – engagement, Bader Philanthropies Inc.; Josh Krsnak, president and CEO of Hempel Companies; and Mike Wanezek, partner at Colliers International | Wisconsin. 

The initial reaction from many office users at the onset of the pandemic was to stay put and hold off on any major decisions until they had more clarity on where things were headed.

More than 18 months in, some users have decided they do not need as much space as they once had.

One instance of that is ManpowerGroup’s decision to move out of an entire floor of its downtown Milwaukee headquarters building, at 201-229 W. Cherry St.

The Milwaukee office market has seen more vacancies than leases in recent months, though there has been overall positive absorption for the year. 

The latest office market overview from the Commercial Association of Realtors Wisconsin and Catylist reported the market posted negative net absorption of 12,000 square feet during the third quarter. To date, the market has posted 98,000 square feet of positive absorption this year.

Multi-tenant properties had 50,000 square feet of negative net absorption in the third quarter, with year-to-date positive absorption of 219,000 square feet.

Subleases were a culprit in the negative net absorption for the quarter, according to CARW and Catylist. GMR Marketing downsized its footprint by 37,000 square feet, and Tribes Services vacated 19,000 square feet.

There have been bright spots throughout 2021. Perhaps the biggest story of the year is Milwaukee Tool’s purchase of the vacant 370,000-square-foot former Assurant building at 501 W. Michigan St. And more new office product is on the way.

According to Catylist, there is 576,000 square feet under construction in eight properties in the region. The Golf Parkway Corporate Center in Brookfield is the largest, with 188,000 square feet slated for completion next summer. Milwaukee-based Irgens Partners LLC is developing that pair of buildings.

Those buildings are already nearly filled by two companies. Seattle-based Milliman Inc. will be the anchor tenant of the six-story, 186,000-square-foot building, and Brookfield-based Hydrite Chemical Co. will occupy the entire 45,000-square-foot second building.

Irgens has seen activity at another one of its properties, the 833 East Michigan building downtown. Merrill-based Church Mutual Insurance Co. announced this summer it is leasing 10,000 square feet of the building. Milwaukee-based Catalyst Construction is adding square footage to its offices there as well.

Irgens still has plenty of space to fill in the new BMO Tower, which opened shortly after the onset of the pandemic in spring 2020. The 25-story glass tower is located at 790 N. Water St.

“I’m still seeing a flight to quality, whether that’s in the suburbs or downtown,” said Wanezek from Colliers. 

Wanezek said much of the activity in recent months has come from regional and local tenants. Many large national and global companies have not finalized return-to-work plans. Wanezek is looking to next year for some of those tenants to make decisions on their office space.

The Commercial Real Estate and Development Conference is sponsored by Building Advantage, CLA (CliftonLarsonAllen), Husch Blackwell and Johnson Financial Group. Exhibit sponsors are Acoustech Supply Inc., Butters Fetting Co., Corporate Contractors Inc. and Findorff.