Other, more positive, trends increase development and redevelopment potential
Commercial and industrial development in southeastern Wisconsin followed the national trend in 2001 — it slowed significantly.
Some developers and community officials report sales hitting the proverbial wall after Sept. 11. Others report a gradual cooling-off during 2000 and 2001.
While developers last year touted their high-tech office spaces, with some spec buildings featuring numerous connectivity suppliers, those same developers are watching those properties lease out more slowly than anticipated in what some observers are calling a hypersupplied market.
Office building vacancy rates have been improving in the Milwaukee market for a number of years. According to US Census Bureau data, the average vacancy rate fell from 22.9% in 1990 to 16.9% in 1999. A spate of spec office space building in the southeastern portion of the state seems to have caused this trend to hiccup.
Developments that came on-line in 2001 — from a GSSB Development business condo project in the Franklin Industrial Park to the final two buildings of a V.K. Development project at Capitol Drive and Brookfield Road in Brookfield — are lying largely fallow. In the meantime, other developers are reporting that, while their projects in recent years had tended to fill up prior to completion of construction, such was not the case in 2001.
But while the downward trend is cyclical in nature, other more lasting changes are also apparent in SBT’s review of development activity in the eight-county region.
Mixed use is hot
Throughout southeastern Wisconsin, municipalities are seeking to tie commercial, office and even industrial development more closely to surrounding neighborhoods. In some instances, existing retail developments and malls are being reworked to be more pedestrian-friendly. In other cases, new developments are being designed from the ground up to combine a number of uses in either the same area or the same building.
"The trend is now toward mixed use," said Vincent Kuttemperoor of V.K. Development. Kuttemperoor’s company is behind major multi-use developments in Pleasant Prairie, Brookfield and Port Washington. "You have retail, office, apartments, single family. It is sort of a mixed-use development with a lot of sidewalks, open space and recreational. In Pleasant Prairie, we have almost eight miles of sidewalk in 420 acres — plus ponds and open space. That is the sort of thing people are looking for now."
Hotels popping up in suburbs
Another significant trend in southeastern Wisconsin is the development of several hotels in suburban areas — despite the fact that the hospitality industry is on the rocks nationwide in the wake of Sept. 11. In Racine County, two hotels are sprouting in the Village of Waterford. V.K. Development’s multi-use development in Pleasant Prairie features a Hawthorne Suites. In the City of Pewaukee, two new hotels — a 300-guest room Marriott at Highway 164 and I-94 and a 100-bed Radisson at Highway J and I-94 — have come online in the last year. V.K. Development’s multi-use development in Port Washington will feature an 80-unit hotel.
Kuttemperoor was confident of his own decisions involving hotel development, but questioned the ability of Waterford to support two hotels.
"I can not understand why people are willing to put up two hotels — especially when they know they are building more units every year," Kuttemperoor said. "We don’t do a project unless we are very confident that we can pull it off. If hotels don’t perform at least 70% occupancy, you lose your shirt. All I can say is, good luck to them."
Tight times lead to consolidations
A combination of lean economic times and the shrinking of geographic space brought about by the Internet are creating a trend toward office consolidations. That is leaving space vacant at a time when office vacancy rates are already creeping up.
According to William Bonifas, executive vice president of The Polacheck Company’s Office Properties Group, the consolidations hit smaller cities harder than larger ones. But even Milwaukee has felt some pain, and has not been a net beneficiary of the trend toward consolidation, as companies move facilities to first and second-tier cities.
"Generally, companies closed the smaller city offices and consolidated in great big centers in bigger cities," Bonifas said. "Milwaukee was a beneficiary of American Family closing its Racine operation — but there are other companies in the country that have done that here, moving their Milwaukee offices to larger cities. Growth in office space here is due to growth in service businesses — not the attraction of space from outside the market. For example, Fleet Financial is down from hundreds of thousands of square feet of space. That is where technology and cost cutting do have an impact."
Because of national consolidation trends, the Milwaukee office-space market has become dependent on local firms.
"You need to have strong, locally-based companies, Bonifas said. "Kohls is up to 300,000 square feet. You have Quad Graphics. Harley-Davidson. A lot of these guys don’t have office space outside of their own owned facilities — but they do impact the market due to their use of local advertising agencies, accounting firms, law firms."
Paradoxically, the events of Sept. 11 may be holding back the trend toward consolidation, at least for some large users, according to Burke Properties President Paul Votto.
"They need to have redundancy," Votto said of some large corporate users of leased space. "After 9/11, they are thinking they better have another location. If there is a terrorist attack or a natural disaster — if all of their employees and records are in one spot — they will have to rethink that."
While redevelopment of blighted and underutilized areas in the city of Milwaukee is nothing new, some developers are seeing the wave of redevelopment moving into the old-growth suburbs. As cornfields become fewer and further between, suburban planners and developers are looking to blighted and functionally obsolete areas.
February 1, 2002 Small Business Times, Milwaukee
