Retail real estate market heats up

As the U.S. economy continues to improve, more shoppers are returning to stores, and retailers are back in expansion mode.

Several large retail developments are in various stages of development in the Milwaukee area, which should bring several new stores to the region.

In the meantime, a lack of retail development since the Great Recession and a recent influx of tenants has resulted in shortages of available retail space in some areas of the region. Retail space occupancy rates are high in the area’s top retail corridors, which could lead to more small retail development and redevelopment projects in those areas, said Ross Koepsel, a partner with Commercial Property Associates Inc. There is a shortage of good retail space in the North Shore, Mayfair Road, Southridge Mall, Bluemound Road and County Line Road/Appleton Avenue areas, he said.

“A lot of the grade A spaces that became available during the recession have filled back up,” Koepsel said. “I’ve got clients and retailers that are looking for locations and the biggest problem I’ve got is finding a place to put them in the more sought-after retail corridors.”

Many retailers that want to enter or expand in the area will wait until the right location is available, Koepsel said.

The southeastern Wisconsin retail real estate market has had five consecutive quarters of positive absorption, according to the second quarter commercial real estate market report from Xceligent and the Commercial Association of Realtors Wisconsin (CARW). During that time the region’s retail space vacancy rate has fallen from about 8.0 percent to 7.6 percent and the region has absorbed about 1.18 million square feet of retail space, which is about equal to the size of Mayfair Mall.

A large portion of the region’s retail real estate absorption has been the result of large new stores, including new Walmart stores in West Milwaukee and South Milwaukee and a new Woodman’s store in Waukesha, all of which opened during the first half of the year.

“The majority of the positive absorption was a result of new construction,” said Jim Villa, president and chief executive officer of CARW.

But more small retail spaces are filling up as well in the region in shopping centers such as Sendik’s Towne Centre, a 189,000-square-foot lifestyle center located southwest of Capitol Drive and Brookfield Road in Brookfield. It has been revitalized since it was purchased in 2011 by Cincinnati-based Phillips Edison & Company. The vacancy rate has improved from about 18 percent in 2011 to about 10 percent for the retail space and 13 percent for its office space, said John Kuhn, principal of the retail properties group for Siegel-Gallagher, who markets Sendik’s Towne Centre for Phillips Edison.

“The leasing is going pretty well lately,” Kuhn said. “Interest continues to grow.”

Adding to the momentum there is Mandel Group Inc.’s plans to build a three-story, 36-unit apartment building and a two-story, 24-unit apartment building at Sendik’s Towne Centre. That project, “is clearly going to make things better,” for the retailers at Sendik’s Towne Centre, Kuhn said.

Other retail spaces in the area could be getting upgrades. For example, Franklin-based Outlook Development Group LLC plans to improve a pair of outlot retail buildings that it purchased recently in the Timmerman Plaza shopping complex on Milwaukee’s northwest side. Outlook recently purchased two buildings, with a total of 13,500 square feet of retail space, for $1.45 million from Northbrook, Ill.-based Vision Realty Partners. The buildings are attractive because of the new Walmart store and a Pick ‘n Save store that anchor the shopping center, said Outlook vice president of acquisitions Dan Jeserig. The Walmart store at Timmerman Plaza opened last year. Outlook plans to upgrade the facades of the buildings that it has acquired and hopes to replace some of the tenants with national tenants that want to be located near the Walmart store and will be willing to pay higher rent, Jeserig said.

“There is about 5,000 to 6,000 square feet we would like to turn over to better quality tenants,” he said.

The health of the retail real estate market in southeastern Wisconsin is attracting the attention of out-of-state investors. For example, Phillips Edison recently purchased the 87,504-square-foot Glenwood Crossings shopping center in Kenosha from Northbrook, Ill.-based Cloverleaf Group for $12.85 million, or $146.85 per square foot, according to state records. That property was not even on the market, said Michael Basofin, president of Cloverleaf Group.

“(Phillips Edison) first expressed interest a few months ago,” Basofin said. “They pursued the property. Once the price got to where it was (the deal) became a lot more attractive to us. “We’ve had a good experience in Kenosha. I can tell you Pick ‘n Save does very well there. Because of that, it’s an attractive place for stores to locate.”

Out of state investors have purchased several retail properties in recent months including: Escondido, Calif.-based Realty Income Corp. purchased the 80,000-square-foot Shopko store building at N66 W25201 Silver Spring Dr. in Sussex for $9.225 million; Los Angeles-based Capital Drive Holdings LLC purchased the Stratford Plaza building, a 25,725-square-foot multi-tenant retail building located at 12132 Capitol Dr. in Wauwatosa, for $6 million; the Segal Family Foundation Inc., a Watchung, N.J.-based organization that works to help communities in sub-Saharan Africa, recently purchased the 67,196-square-foot Dunham’s sporting goods store retail building at 6525 S. 27th St. in Franklin for $4.8 million; Chicago-based Rothschild Investment Corp. purchased the 61,900-square-foot Hilldale Plaza shopping center in Hartford for $5.15 million; Chicago-based HSA Commercial Real Estate bought the 92,000-square-foot Plaza 173 shopping center at 17300 W. Bluemound Road in Brookfield for $7.6 million.

Meanwhile, several major retail developments are in the works for the region that will add a significant amount of new retail space and will bring new tenants to the market.

The most significant retail project that is currently under construction in the region is the Mayfair Collection project, a mixed-use office, residential and retail project that is being developed by Chicago-based HSA Commercial Real Estate at Highway 45 and Burleigh Road in Wauwatosa. In the first phase of the project, HSA is creating 270,000 square feet of retail space. Tenants in the shopping center, which will open next year, are expected to include: Nordstrom Rack, Saks Off 5th Avenue, Dick’s Sporting Goods, Ulta Beauty, Old Navy, Carter’s, Torrid, Maurices and Men’s Wearhouse, according to various reports.

A three-level, 140,000-square-foot Nordstrom department store will be built on the east side of Mayfair Mall in Wauwatosa. The new store is expected to open in 2015.

Walmart and Sam’s Club stores have been recently announced for the Pabst Farms development in Oconomowoc. The stores are slated for the Pabst Farms Town Centre, located northeast of I-94 and Highway 67.

Meanwhile, Marcus Corp. and the Town of Brookfield still have not reached a final agreement for a tax incremental financing (TIF) package, of about $30 million, that Marcus says it needs to move forward with plans for The Corners, a 460,000-square-foot retail and residential development proposed at the former West Point Cinema and former Menard’s store sites at Bluemound Road, Barker Road and I-94, near Goerke’s Corners. Davenport, Iowa-based Von Maur Inc. plans to open a department store, which would be the anchor retail tenant for The Corners.

Menomonee Falls-based Continental Properties Company Inc. is working on plans to expand the Grafton Commons development at I-43 and Highway 60 in Grafton, according to commercial real estate sources. One commercial real estate source said Continental is trying to assemble a 30 acre site north of Costco where it would build about 200,000 square feet of retail development with two 50,000 to 60,000-square-foot big box stores, some medium box stores between 25,000 and 40,000 square feet, and some smaller 1,200 to 10,000 square foot tenants. Another source said Continential is working on a deal for a 55,000-square-foot Hobby Lobby store north of Costco

Construction is expected to begin by the end of the year on some components of the Drexel Town Square project, at the former Delphi plant site southwest of Howell Avenue and Drexel Road in Oak Creek. The project is an attempt to create a downtown for the city. A development team led by Wispark LLC is working on the project which, as proposed, will include a new City Hall and library, a 193,0000-square-foot Meijer store, several restaurants, a mixed-use Main Street area, a two-acre town square park and 500 to 600 upscale apartments.

The Meijer store at Drexel Town Square is one of several planned for the region by the retailer. Other Meijer locations are planned in Grafton, Sussex, Wauwatosa, Waukesha and Kenosha.

One commercial real estate source said it appears that Meijer wants to open all of its stores planned for the area at the same time to maximize distribution and advertising efficiency.

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