Upturn in development of new commercial real estate

After a long period of inactivity in the development of office, retail and industrial properties (both locally and nationally), there are indications that it may be time to reconsider your long-awaited project.

As projects like Amazon’s distribution center in Kenosha, The Corners retail development in the Town of Brookfield, 833 East Michigan in downtown Milwaukee and the Northwestern Mutual Tower and Commons all break ground, we feel that a corner has finally been turned.

These projects are certainly a welcome sign for the local economy and for all involved in the commercial real estate industry. A variety of other factors – pent-up demand, an improving economy and employment picture, low interest rates, and consumer confidence – along with these key projects have resulted in developers’ willingness to consider and invest in major projects.

Below is a chart reflecting the square foot deliveries of new projects in the industrial, office and retail sectors in the past five years (2009 to 2013) and how that compares to the long-term average from 1982 to 2013. To provide perspective, these figures are also shown for both the Madison and Twin Cities markets.

 
Annual new deliveries – Milwaukee
Industrial Market Office Market Retail Market
1982-2013 Last 5 yrs % Change 1982-2013 Last 5 yrs % Change 1982-2013 Last 5 yrs % Change
1,800 700 -61% 800 300 -63% 1,100 840 -24%
         
Annual new deliveries – Madison
Industrial Market Office Market Retail Market
1982-2013 Last 5 yrs % Change 1982-2013 Last 5 yrs % Change 1982-2013 Last 5 yrs % Change
750 200 -73% 375 140 -63% 425 220 -48%
         
Annual new deliveries – Twin Cities
Industrial Market Office Market Retail Market
1982-2013 Last 5 yrs % Change 1982-2013 Last 5 yrs % Change 1982-2013 Last 5 yrs % Change
5,000 950 -81% 3,000 660 -78% 2,900 1,000 -66%

The key projects now under development in Wisconsin, along with the low interest rate environment and gradually improving trends, indicate a market more conducive to new developments. We hope and anticipate the percentage change to be positive in the years to come – especially in comparison to the latent state of development over the past few years.

Pat Lawton is senior vice president and director of investment real estate at Bank Mutual in Brookfield.

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As Senior Vice President, Commercial Real Estate Regional Manager, Pat is responsible for managing and growing Johnson Financial Group’s commercial real estate portfolio and group in Wisconsin. With over 30 years of experience, he enjoys collaborating with commercial real estate developers and investors to provide construction, acquisition and term financing to assist in their project’s success.

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