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Milwaukee Tool’s expansion into downtown Milwaukee is a generational real estate opportunity that will give a boost to a local office market just starting to emerge from a pandemic-fueled downturn.
That’s how city leaders and commercial real estate industry experts describe the deal.
Milwaukee Tool this spring announced plans to take over the former Assurant building at 501 W. Michigan St., where it will move one of its business divisions and hundreds if not thousands of jobs.
Ty Staviski, Milwaukee Tool’s chief financial officer, said in public hearings the company will have hundreds of jobs in the building by October. A city incentive deal calls for an initial 1,210 jobs in exchange for a $12.1 million grant. A second $7.9 million grant could support a building expansion and another 790 jobs there.
Milwaukee Mayor Tom Barrett said the expansion is the largest one-time infusion of jobs downtown in at least 20 years, maybe even 50.
Milwaukee Tool will acquire the building and remodel it before moving in employees. It will take 372,000 square feet of office space off the market in downtown Milwaukee, and more specifically the Westown neighborhood.
This deal would drop the office space vacancy rate of the “Downtown West” market from 28% in the first quarter to 21%, according to Chris Allen, national director of analytics at REDIComps and Catylist.
Downtown West had the highest office space vacancy rate among the Milwaukee-area submarkets that REDIComps tracks, Allen said. It hasn’t moved much recently either. Its vacancy rate was nearly the same in the first quarter of 2020.
The vacancy rate for the broader central business district, which also includes east of the Milwaukee River as well as the Historic Third ward, would likewise drop from 18.5% to 16.6%, he said.
“I would say that’s a needle pusher,” Allen said of the Milwaukee Tool deal.
Taking away that much vacancy at once strengthens the office market, said Ned Purtell, principal of Founders 3.
“Having huge blocks of vacancy does not help landlords or the overall market maintain healthy rental rates,” Purtell said.
More broadly, the addition of that many employees will provide a big boost to others, such as those in the business of food and beverage or hospitality, he said.
The deal came about partly out of necessity. Milwaukee Tool had hired hundreds of employees during the COVID-19 pandemic, when many were working from home, and they simply didn’t have any place to put them. But it also has to do with attracting young talent. That’s a common refrain heard from companies that have relocated or opened new offices in city centers in recent years.
“By extending our corporate presence into downtown Milwaukee, we are poised for continued growth,” Steve Richman, president of Milwaukee Tool Group, said in a statement. “As one of the largest employers in southeastern Wisconsin, we’re thrilled to expand our presence in the city, as we continue to attract, retain and recruit from a diverse pool of local talent.”
Purtell said Milwaukee Tool is a high-profile example of a general pickup in office activity of late. Activity died down during the height of the pandemic. Although some deals got done, many office users opted not to make any big long-term decisions on their space.
Things seem to be turning around with the widespread availability of vaccines and the easing of restrictions. Purtell said a lot of users are again looking at office space, including in Westown. They are also looking to execute long-term leases again.
But the Milwaukee Tool deal itself has boosted interest in the downtown market among office tenants, said Lyle Landowski, chief operating officer of Colliers International | Wisconsin.
Milwaukee Tool has for a long time been in the suburbs when it comes to Milwaukee-area operations. Its headquarters will remain in Brookfield, and it recently selected Menomonee Falls for a new massive multi-purpose corporate campus.
But its expansion to the Assurant building has caused other office users to take a closer look at downtown. It is largely about attracting workers, Landowski said.
“Objectively speaking, activity has picked up significantly,” he said. “I think, if you were to survey the market, you would find over the last month activity has been picking up. But there’s no question, since Milwaukee Tool announced, there’s been a renewed interest in downtown.
“That’s more than just cursory; there’s a lot of firms that are asking the question and are sincere about it, ‘How do we address our talent strategy?’” Landowski added. “‘And if Milwaukee Tool is doing this, what does that mean for our organization?’”