Trying to get a clear sense of Milwaukee’s office market can be a bit confounding these days — especially if you’re listening to the chorus of conflicting perspectives.
Speak to a broker or city booster, and they’re liable to paint a rosy picture of workers eager to leave the cocoons of their home offices and head back out among the high rises.
Speak to someone who’s been out walking around downtown on a Tuesday or Wednesday afternoon, and you might hear them exclaim, “It’s dead out there.”
Gard Pecor, a senior market analyst with CoStar Group, said the condition of Milwaukee’s office market is neither dandy nor dire. It’s just different.
Data from CoStar shows that the Milwaukee market, which encompasses all of Milwaukee, Waukesha, Washington and Ozaukee counties, ended the second quarter with more than 12 million square feet in available office space, the highest on record. The last time the region even came close to seeing that amount of available space was in the first quarter of 2011, when available square footage rose to about 10.3 million.
Most of that available space is in the suburbs, said Pecor, but 4 million square feet is on the market in downtown Milwaukee commercial business district.
“Basically, downtown Milwaukee has the most available space in both direct available space and sublease space since 2006 (when data collection started),” Pecor said.
On the flip side, leasing activity is rebounding. In the second quarter of 2021, brokers originated or renewed office leases in Milwaukee totaling just over 350,000 square feet, according to CoStar. In the second quarter of this year, that number was closer to 500,000 square feet. In June 2021, brokers signed around 35 leases. In June of this year, that number is close to 44.
But the real story is where the increase in leasing activity is meeting a desire for smaller spaces.
Although there have been some recent announcements of larger leases, including Old National Bank’s decision to lease 34,000 square feet at the city’s newest office building – the 11-story Huron Building at 511 N. Broadway – overall lease sizes have been trending downward.
The 12-month trailing average for lease sizes prior to the COVID-19 pandemic was about 4,000 square feet. So far this year, that number has been hovering at around 3,000 square feet.
“The pandemic accelerated trends we were already seeing,” Pecor said. “Companies have been downsizing their space for a while now.”
While there are a lot of people who do not want to come back to the office – mainly commuters – there are still plenty of workers who do, Pecor said. And that will continue to impact the sizes of leases as well as the quality of offices employers are seeking for whatever balance they can strike with their workers.
Jim Cavanaugh, principal at Cushman & Wakefield | Boerke, is seeing the desire for higher-quality spaces when he talks to clients.
“If you are going to hire someone and justify the need for them to come into the office, then the space needs to be high quality,” Cavanaugh said. “We’re seeing less cube farms, and more spaces that are specifically designed to allow for collaboration.”
How that shift has played out with existing leases, he said, is that landlords are providing tenants with a greater allowance for space improvements and build outs. That’s especially true now that rental rates have begun to increase again.
“Certainly, we are not going to be adding new product, but I don’t think we are going to see a huge jump in vacancy,” Cavanaugh said.
For all the talk of “the urban exodus” during the pandemic, Pecor notes that in Milwaukee’s case, the opposite has been true. Although downtown Milwaukee has a lot of available space on the market – mostly in older office buildings – the market also added 750,000 square feet of speculative office space since 2019. And more than half of that is currently leased.
The real exodus seems to be occurring in the suburbs.
The suburbs have added around 2.23 million square feet of available office space from tenants downsizing, closing or moving out of the suburbs. Another 183,000 square feet of space has also been added through new construction.
“There’s been a strong movement from the suburbs to downtown Milwaukee,” Pecor said.
And, unlike the city of Milwaukee, which can lean on its population density and vibrant entertainment and retail districts to repurpose some obsolete office buildings into hotels and apartment buildings – the 100 East building, which is in foreclosure is one such candidate – suburban communities may face a tougher battle in finding ways to repurpose buildings in suburban office parks.
Even still, some Milwaukee buildings may end up facing the wrecking ball, if only so the land itself can someday be reused – maybe for a more modern office development.
“I don’t think the office market is distressed,” Pecor said. “There is still going to be a need to collaborate.”Editor's Note: This story has been updated to clarify distinctions between the city of Milwaukee, the downtown commercial business district and the suburban office market. Additional changes have been made to clarify the amount of available office space in the suburbs, leases made in Milwaukee, and historical comparisons.