Real estate spotlight: Office market poised for pandemic recovery

The office real estate market was undoubtedly affected at the height of the COVID-19 pandemic. Many workers weren’t even in the office, and few companies were thinking about getting a new one. Many tenants who may have moved or upgraded their space in normal times opted instead for short-term lease renewals amid the uncertainty.

Now, with mass vaccination and a recovering economy, there are signs of life in the office market. Industry professionals say things should only improve in the coming months.

“I think we’re going to make up lost ground from last year, and we’ll do it this year,” said Jenna Maguire, an office broker with Milwaukee-based Founders 3. “I think there’s going to be continued interest … across the board. I don’t really think we’re having that, ‘office space is redundant or not necessary, everyone’s going to work from home.’ That’s just not going to happen.”

Perhaps the biggest office deal during the pandemic last year was Kahler Slater’s announcement it would move into the new BMO Tower downtown. 

There’s been more for the industry to celebrate this year. The headliner was Brookfield-based Milwaukee Tool, which revealed in the spring it would expand into downtown Milwaukee.

And three companies announced in the same week in late June they were establishing or moving their local offices. Merrill-based Church Mutual Insurance Co. said it was leasing 10,000 square feet at the 833 East building downtown. New York-based law firm Wilson Elser said it moved its local office to the Cathedral Place building downtown. Chicago-based Sikich revealed it would move its Brookfield office to The Corridor development.

Maguire, who primarily represents landlords in lease deals, said she can take the pulse of the office market by the number of property tours she’s giving on Friday afternoons in the summer. A lot of tours on those days indicate a strong market.

She said she has been busy the past several Fridays. The areas with the most interest include Westown, Walker’s Point and the Historic Third Ward. Most of the users who are active in the market so far are either regional or Wisconsin-based companies, she said.

Church Mutual views its office environment as a way to create company culture, train new employees and recruit new workers, said Kevin Root, senior vice president of operations.

“We do believe that there is a role for our employees to be at the office,” he said. “We’re currently working through that and identifying exactly what that means, but we do see a lot of benefits of having the employees in the office, even if it is not necessarily on a full-time basis moving forward.”

Those employers have all noted their new office spaces will reflect a more flexible workplace. Sikich and Wilson Elser said their offices would use a hoteling system, wherein employees would reserve a workstation prior to coming in. There will also be more collaborative space.

Root said Church Mutual is still finalizing the details of its Milwaukee office but it will reflect those same principles. He said there aren’t as many hard-wall office spaces, which “should facilitate more collaboration.”

Maguire said businesses are considering more flexible environments as part of efforts to entice workers back to the office.

“A lot of companies are referencing a hybrid work model, and/or a certain percentage of their office that will be virtual,” she said. “But definitely the idea of having more collaborative space, space to spread out, (and) amenities have been really critical in a lot of decision-making.” 

Office-market activity coincides with a general reenergizing of the region. Vaccinations are readily available, and many people feel safe to gather in large crowds. This is evidenced by Bucks fans packing the Deer District during playoff games. What’s more, a recent survey of downtown Milwaukee employers found that workers were returning to their downtown offices at a faster rate than many other metro areas.

Lyle Landowski, managing director of Colliers International | Wisconsin, said the momentum Milwaukee had before the pandemic has started to come back. Milwaukee Tool’s expansion and other major projects, such as The Couture high-rise on the city’s lakefront, could grab the attention of more investors and office users.

He said Milwaukee Tool was a “massive shot in the arm” to the market. When a company the size of Milwaukee Tool demonstrates it is confident it can find success in the city, that sends a strong signal to others.

“We lost a little bit of momentum through COVID, but I think people are starting to wake up to the fact we have a beautiful downtown and infrastructure, we have a very stable economy and we’re going through a little bit of renewal, especially as our manufacturers become tech companies,” Landowski said. “I think the fundamentals of our marketplace are going to be very attractive to both corporate users and investors of real estate.”