Southeastern Wisconsin’s industrial and office real estate markets performed well overall in 2008, as vacancies fell and absorption was positive in most of the metro area, according to a panel of commercial real estate brokers who spoke recently at the Annual Market Update presented by the Wisconsin chapter of the National Association of Industrial and Office Properties (NAIOP) and the Commercial Association of Realtors Wisconsin (CARW).
However, don’t expect that positive trend to continue in 2009, the brokers said. The U.S. and global, recession should result in higher vacancy rates for the region’s industrial and office space in 2009, they said.
Industrial space
The metro Milwaukee area’s industrial market is about 10.1 percent vacant, the brokers said. The west submarket (Waukesha County) has a 6.02 percent vacancy rate. The north submarket (north of Capitol Drive including Ozaukee County and part of Washington County) has a 8.1 percent vacancy rate. The south submarket (southern Milwaukee County and Racine County north of Highway 20) has a 12.5 percent vacancy rate. The central submarket has a 15.45 percent vacancy rate.
The region’s industrial space vacancy rate improved from 10.3 percent in 2007, despite the addition of the vacant former Tower Automotive site to the database for 2008.
North submarket
The north submarket had 645,757 square feet of positive industrial space absorption in 2008, and its vacancy rate has fallen from 10.79 percent in 2005 to 8.1 percent this year. But that doesn’t tell the whole story for that part of the region, said Mike Fardy, partner and chief operating officer of Inland Companies.
The portion of the north submarket to the west of 76th Street has a 6.8 percent vacancy rate and the area east of the street has a 8.6 percent vacancy rate. The northwest part of the metro area has better access to the Zoo Interchange and is located farther away from the City of Milwaukee. Crime perceptions “adversely affect business decisions to locate in areas closer to the City of Milwaukee borders,” Fardy said.
West submarket
The west submarket had 405,598 square feet of positive industrial space absorption in 2008, and its vacancy rate has fallen from 9.95 percent in 2005 to 6.02 percent in 2008.
Waukesha County performs so well, in large part because a lot of business owners live there and want their companies close to their homes, Fardy said.
Central submarket
The central submarket’s 15.45 vacancy rate is skewed somewhat by the addition of the 2.2-million-square-foot Tower property to the data. The submarket had a good year in 2008 with 234,746 square feet of positive absorption, said John McCardle, senior vice president of NAI MLG Commercial.
The ongoing redevelopment of old industrial buildings in Milwaukee’s Historic Third Ward and other older areas could continue to drive down the industrial space vacancy rate in the central part of the region, he said.
“We’re going to lose some of our older industrial buildings as it’s going to be converted to retail, office, and mixed use,” McCardle said.
However, the central submarket’s vacancy rate will be hurt by growing concerns in the business community about the business climate in the City of Milwaukee, he said. The new sick leave mandate is especially a concern.
“One thing that’s come up (with tenants) at least a handful of times, ‘I want to be west of 124th Street,'” McCardle said.
South submarket
The industrial space vacancy rate in the south submarket has been rising from 6.59 percent in 2005 to 12.46 in 2008, as several speculative developments have been built near General Mitchell International Airport. However, those speculative developments started to fill up in 2008, and the submarket had positive net absorption of 119,809 square feet.
“There was quite a bit of spec built in the area, but we’re starting to get some traction,” McCardle said.
Now speculative development in that area is on hold, but the mail processing and distribution center that the U.S. Postal Service plans to build in Oak Creek should attract more development to the south side, McCardle said.
Sprawl from the Chicago area will continue to creep northward and will increasingly drive growth in the area south of Milwaukee, McCardle said. The region’s business community needs to take advantage of its proximity to Chicago, he said.
“We all have to change our thinking and view Chicago as a partner and not as an enemy,” he said.
Office submarkets
The metro Milwaukee area’s office market has a vacancy rate of 16.02 percent, the brokers said, an improvement from the 2007 vacancy rate of about 18 percent.
Office submarket vacancy rates are: central, 19.41 percent; south, 12.66 percent; west, 14.66 percent; north, 17.42 percent.
The north office submarket showed significant improvement in 2008, compared with the 23.04 percent vacancy rate in 2007. Bayshore Town Center attracted several tenants, which helped reduce the submarket’s vacancy rate. The northern submarket had positive absorption (223,585 square feet) for the first time in years, said Steve Palec, senior vice president of CB Richard Ellis.
The southern submarket is a small office market. It had 8,000 square feet of positive absorption, but its vacancy rate dipped from 11.96 percent in 2007 to 12.66 percent in 2008.
Although the central submarket has a 19.41 percent vacancy rate, 2008 was “one of the best years ever” with 246,000 square feet of positive net absorption said Dan Walsh, co-director of the office properties group and principal of Siegel-Gallagher. The vacancy rate was also an improvement compared to the 20.84 percent vacancy rate in 2007.
“The central market is doing great,” he said.
Milwaukee
Another new business has opened in the Fifth Ward, which is becoming the next hot Milwaukee neighborhood. Tara Ali recently opened Fuzion Café & Lounge at 524 S. Second St. The restaurant’s menu offers a blend of various ethnic cuisines, including Mexican, Middle Eastern, Cajun and Caribbean food. “I wanted to provide Milwaukee with a place that honors all cultures,” Ali said.
James Jordan, the owner of a property management company called Dynasty Realty, recently opened a Wing Zone franchise at 1638 Van Buren, at the southwest corner of the intersection with Brady Street. Jordan said he became interested in becoming a Wing Zone franchisee when he sampled the product during a trip to the East Coast. “When I tried the chicken wings I said, ‘this is something that would go over real well in Milwaukee.'” The location at Brady and Van Buren allows the restaurant to serve area college students and downtown businesses for catering. Jordan also likes the density of the neighborhood. “Within three miles, there are over 800 apartments and condos,” he said. “It’s a very dense area.”
Meqoun
Milwaukee-based Roundy’s Inc. plans to build a 60,000-square-foot Pick ‘n Save Metro Market grocery store on a vacant 6-acre site at 11558 N. Port Washington Road. The store will replace the Pick ‘n Save store at 11300 N. Port Washington Road.
National City Bank plans to build a 2,000-square-foot branch at 11201 N. Port Washington Road. The project still needs to be approved by city officials.
Mark Getzinger and Jane Westreich plan to open a health club called Gimme Strength in a 3,000-square-foot space in a multi-tenant building at 10650 N. Baehr Road.
Town of Somers
MIR Group LLC plans to build a mixed-use development on a 60-acre site southwest of Highway 31 and Highway E in Kenosha County. The project would include 94 condominiums and retail space, including a grocery store.
Muskego
Bushy’s Pub plans to remodel the 13,770-square-foot former Atonement Lutheran Church building, located next to the pub at S68 W14891 Janesville Road, into an 11,198-square-foot building called Bush Gardens for meetings and events. The church recently moved to a new building at S70 W16244 Martin Dr.
Brookfield
Milwaukee-based Park Bank will relocate its Brookfield branch at 15850 W. Bluemound Road to a new stand-alone 10,000-square-foot branch at 14870 W. Greenfield Ave. in March of 2009. The new branch, which is under construction, and will include three drive-through lanes. The bank’s lease at its Bluemound Road branch will expire in April, said P. Michael Mahoney, chairman of the board, president and chief executive officer of Park Bank, and the company was looking for a more convenient location for its customers. “Bluemound is getting more concentrated with traffic. I think for our customers, this will be easier access that is just as convenient, and it’s not even a mile away from our old location,” Mahoney said.
