The fundamentals of the southeastern Wisconsin industrial real estate market have been strong for some time.
The market has had 17 consecutive quarters (more than four years) of positive absorption, including absorption of more than 1.5 million square feet of space during the first half of 2014. The southeastern Wisconsin industrial market had 4.3 million square feet of positive absorption in 2013 and has absorbed more than 19 million square feet of space since the second quarter of 2010, according to Xceligent data.
The region’s industrial space vacancy rate has been on a steady decline since the Great Recession, when it peaked at about 9.75 percent in the fourth quarter of 2008. The vacancy rate was at 6.05 percent during the second quarter of 2014, according to Xceligent.
Despite the positive data, there has been a limited amount of spec industrial development in the region, and most of what has been built has been in the hot Kenosha County market. Most of the new industrial developments in the region in recent years have been build-to-suit or owner occupied projects.
But there are now signs that spec industrial development is about to pick up significantly in the metro Milwaukee area. One new spec industrial development is under construction in Oak Creek, three more are under construction in Pleasant Prairie, and several others are planned.
That’s a good thing, according to commercial real estate brokers who say the region has a shortage of industrial space.
“We’re going to need it,” said Brett Garceau, vice president-industrial properties for Milwaukee-based NAI MLG Commercial. “Supply is tight.”
“There is just not that much space to choose from,” said James T. Barry III, president of Milwaukee-based Cassidy Turley Barry.
“There’s a lot of little stuff available, but the large blocks of space are almost all gone,” said Mike Judson, president of Pewaukee-based Judson & Associates.
In Oak Creek, Malvern, Pa.-based Liberty Property Trust is building a 171,114-square-foot speculative industrial building at 10020 S. Reinhart Drive. The project is expected to be complete in November.
In Pleasant Prairie, a joint venture of Milwaukee-based Wispark LLC and Oak Brook, Ill.-based CenterPoint Properties is building a 521,000-square-foot spec industrial building and a 412,000-square-foot spec industrial building southeast of 116th Street and 88th Avenue. Site work is underway for the two buildings and construction is expected to be complete in late spring of 2015.
Also in Pleasant Prairie, Milwaukee-based Zilber Property Group is building a 176,000-square-foot speculative industrial building. It will be the sixth spec industrial building developed by Zilber in the village’s LakeView Corporate Park since 2008.
In addition, several other developers are planning speculative industrial projects in the region.
Ryan Companies U.S. Inc. plans to build a 158,292-square-foot speculative industrial building between Old Orchard Road and Westbrook Crossing, south of Nightingale Way, in Menomonee Falls, on a 13-acre site in the Westbrook Corporate Center.
“There’s been good interest (in the project),” said Ryan Marks, managing director of Ryan Cos.’ Milwaukee office. “There just isn’t a whole lot of functional and available product for tenants that are looking.”
In Oak Creek, an undisclosed development firm is working on plans to build a 159,840-square-foot industrial building and a 70,200-square-foot industrial building on a vacant site at 813 W. College Ave. Oak Creek Director of Community Development Doug Seymour declined to disclose the name of the developer for the project, because no formal application has been submitted yet. He said the developer has a tenant in mind for the smaller building but has not indicated any tenant interest in the larger proposed building. One commercial real estate source said Ryan Cos. is also working on that project. When asked about it, Marks declined to comment.
Wauwatosa-based Wangard Partners Inc. plans to build a 73,000-square-foot industrial building and a 50,000-square-foot industrial building on the former Yellow Freight truck terminal site at 11406-11528 W. Rogers St. in West Allis. Wangard has a tenant, which has not been named, for the larger building but the smaller building will be built on speculation. Both buildings are expected to be complete by late spring or early summer of 2015.
Last year, Interstate Partners submitted plans to the City of Pewaukee for five industrial buildings, including one completed recently for Federal Mfg. LLC. Jeff Whipple, development associate for Interstate Partners, said there is no update “at this time” on the other proposed Pewaukee industrial buildings.
Brookfield-based 2000 Development plans to build a 130,000-square-foot industrial building northeast of Watertown Road and Commerce Circle in Pewaukee.
“It will be interesting to see which of these projects gets a shovel in the ground,” Garceau said.
Developers and brokers say that most speculative projects are built by large development firms that have the capital to pay for them, because banks are reluctant to lend for speculative projects. That’s why the firms that are building spec industrial projects in the region include Zilber, Liberty Property Trust and the CenterPoint/Wispark joint venture.
“You need deep pockets to do it,” Judson said.
Large national development firms have been less active in the region than they were prior to the recession. As the economy has recovered, other markets such as Chicago, Indianapolis, Nashville, Tenn. and Louisville, Ky. are getting much more spec industrial development than the Milwaukee area, despite its strong fundamentals, Barry said.
“We’re almost to the point of being behind the curve,” he said. “We’re at a point in the cycle that (spec industrial development in the region) is not just justified, it’s needed. If you have the resources right now to build a spec building, I think on the risk-reward spectrum you are more likely to be on the reward side of it.”
