A real estate recovery could be coming in mid to late 2002, says Greg Uhen, president of Eppstein-Uhen Architects, Milwaukee, after an informal survey of industry insiders.
But the turnaround could simply be part of the traditional cycle of the market, Uhen observes.
"Real estate goes in cycles much like the economy," Uhen noted. "You have recovery, expansion, hypersupply, and recession. And then it cycles into recovery again. In a number of industries, we might be in a hypersupply — where we are actually before a recession. We are not in a recession when it comes to multifamily, for instance — but we are getting a lot of product out there. You might see increased vacancy rates and you still see new construction happening."
While multifamily might be in oversupply, Uhen said that some niches are growing.
"We have seen a dramatic increase in downtown residential," Uhen said. "And we also have seen a very strong market in long-term and senior care."
Uhen said there is a trend toward continuing-care campuses — "where people can age in place. We have been involved in those types of facilities in multiple states."
Office leasing slow
Uhen said a hangover of supply from a binge of office construction — and a lack of growth or, rather, a shrinkage in the size of businesses — are putting a crimp in office leasing. There are more office vacancies here than in similar Midwestern cities such as Minneapolis and Cincinnati, he said.
"We are probably more at the tail end of a hypersupply — where you still have new construction going on," Uhen said. "There is not a lot of new construction going on for office — most of it concluded in the first half of 2001. But there has been very little construction going on in the second half — close to zero in the downtown area, and a couple projects in the suburban areas."
The office market has slowed dramatically for Uhen’s business with a few exceptions, he said.
"The pockets of opportunity are with larger end-user clients," Uhen said. "Speculative office has been dead a long, long time. What you have seen over the last seven years has been build-to-suit or build-to-lease. Build-to-lease has slowed substantially, to a screeching halt. There are opportunities with larger corporations that have decided to reorganize or shift to a more efficient operation. Instead of moving, they might take their existing space and renovate."
Industrial feels solid
Uhen said that Milwaukee’s industrial heritage and economy has served the industrial real estate market well, and he characterized the market as a little soft due to hard times manufacturers are experiencing in the last year.
"Milwaukee is actually below the national average in terms of industrial real estate vacancy rates," Uhen said. "The general feeling is that it is going to be lean for a while. There is a little more room for additional vacancy to happen. The fringe areas outside of Milwaukee, Kenosha and Racine, will continue to see some pockets of opportunity for development on the industrial side."
While vacancies for industrial space are low, Uhen said that in his own business, there has not been much activity.
"There are opportunities out there," Uhen said. "But right now it is even slower than office. You are seeing a shrinking of industrial demand and an increase in technology and services."
Retail rolls with trends
"Lifestyle centers have stayed fairly strong," Uhen said of the local retail market. "Retailers follow the economy very closely. The types of retail opportunities out there are more in the direction of the lifestyle center versus the luxury-type retail items. "This type of center maybe has a Starbuck’s, a smaller grocery store, a bookstore. It is not a regional mall — it draws on a smaller number of households."
Uhen said that revitalization of older retail developments is also a trend, using Capitol Court and the Bayshore malls as examples. Uhen’s firm is involved in the Capitol Court project.
"Communities are taking tired centers that are well-centered geographically and bringing in national anchor tenants that can draw the different patrons to them," Uhen said.
The hotel industry was "hit very hard by Sept. 11," Uhen said. "Business travel is down substantially. Leisure travel has been holding up because of the competitive rate wars. But because business travel is down, full-service hotels are really in a big slump. Limited-service hotels may perform best out of the hospitality market."
As a result of Milwaukee’s reliance on business travel to bolster its hotel industry, things are at a standstill.
"Milwaukee is probably truly in that recession period where we are hopefully waiting for the recovery cycle to hit," Uhen said.
Health care/institutional a godsend
The public sector has been a real blessing to the construction and architectural industry, according to Uhen.
"Education and other public facility development is less prone to cycles than other sectors," Uhen said. "It is still very strong. You have seen a lot of referendums pass lately — which is an interesting trend. You see them pass more so in than in the past — even in tough economic times."
The state’s largely not-for-profit health-care industry has been solid as well.
"Health care is still very strong," Uhen said. "There are certainly things that are happening at the state level."
Sidebar — Uhen: Real estate sectors work through cycle
These factors will affect the real estate market this year, according to Greg Uhen of Eppstein-Uhen Architects in Milwaukee.
Jan. 18, 2002 Small Business Times, Milwaukee