Future looks brighter for region’s commercial real estate

Although local commercial real estate brokers are bullish about the future of the retail property sector in southeastern Wisconsin, the latest statistics from Reis Inc. reveal a renter’s retail market for the moment.
Brokers are hopeful that the transformation of the Bayshore Mall into a town center in Glendale, the redevelopment of the former Pabst Brewing Co. complex into the PabstCity site in downtown Milwaukee and the development of the Pabst Farms project in Oconomowoc will enable the southeastern Wisconsin market to attract high-end retailers that have ignored the region in the past.
Those promising projects indeed bode well for the area, and the optimism is further fueled by remodeling at some of the region’s key existing malls, such as Southridge Mall.
However, the current market shows retail properties with rising vacancy rates and relatively flat asking rent prices.
The combined retail vacancy rate for neighborhood and community shopping centers in southeastern Wisconsin jumped to 9.4 percent in the fourth quarter of 2004, a 130-point basis point increase, which was the second-largest increase of 62 metropolitan retail markets tracked by Reis Inc., a New York-based real estate data analysis company that provides research to Small Business Times.
"The largest increases in vacancy occurred in Detroit and Milwaukee, where the average rate rose 130 basis points," Lloyd Lynford, chief executive officer of Reis Inc., said in his pre-release analysis of fourth-quarter data. "In fact, when one looks at the ‘Suffering Meter,’ it is clear that despite the favorable national trends, the results at the metro level are not uniformly positive."
Southeastern Wisconsin’s 9.4 percent retail vacancy rate was well above the national average of 6.8 percent in the quarter, Reis reported.
Higher vacancy rates generally translate into lower rent rates for landlords.
"Effective rents fell most sharply in San Francisco (-1.1 percent), Pittsburgh (-0.8 percent), Milwaukee (-0.7 percent) and Kansas City (-0.5 percent)," Lynford said.
The projected 2005 submarket retail vacancy rates are: south Milwaukee County, 8.2 percent; north Milwaukee/Ozaukee County, 11.9 percent; and Waukesha County, 6.0 percent.
The projected 2005 submarket retail asking rents are: south Milwaukee County, $13.13 per square foot;
north Milwaukee/
Ozaukee County, $14.22; and Waukesha County, $16.77.
Southeastern Wisconsin’s office property market fared a bit better in the fourth quarter when compared with national data, according to Reis. The local market had a 16.0 percent vacancy rate, which was slightly below the national average of 16.2 percent.
Reis is forecasting a 2005 office vacancy rate of 16.1 percent and a triple net asking rent of $18.05 per square foot for the Milwaukee market. Reis projects the vacancy rate to decline to 12.2 percent and the asking rent to increase to $19.44 by 2008.
The projected 2005 submarket office vacancy rates are: downtown Milwaukee, 13.9 percent; Brookfield/New Berlin, 14.0 percent; Wauwatosa/West Allis, 19.9 percent; north Milwaukee/
Ozaukee County, 19.3 percent; and west Waukesha County, 20.2 percent.
The projected 2005 submarket office asking rents are: downtown Milwaukee, $18.46; Brookfield/New Berlin, $19.35; Wauwatosa/West Allis, $16.60; north Milwaukee/Ozaukee County, $16.29; and west Waukesha County, 20.2 percent.
"Not all of the challenges confronting the office market have been surmounted; nor, however, can it be maintained that we languish in the doldrums that have characterized the market since the spring of 2001," Lynford said.
The City of Milwaukee is trying to jump-start its prospects for office and retail development. Mayor Tom Barrett announced Jan. 25 that the city is requesting proposals to buy and develop its 11,540-square-foot parcel on the corner of Pleasant, Jefferson and Water streets in the Park East corridor.
"The Park East corridor is a prime opportunity for Milwaukee to reshape its future by turning blight into a blessing. We must do all we can to move the redevelopment of this area forward, no matter what the process. We at the city stand ready to bolster development that will add to the vitality of this city. Where you see vacant lots, I see jobs and additional tax base," Barrett said.
The city’s deadlines for proposals for the Park East parcels is March 31. Additional information is available at www.mkedcd.org/parkeast.
Modest improvements are expected in the region’s industrial property market.
The Polacheck Co. Inc., a CB Richard Ellis Company, projects the following industrial property vacancy rates for 2005: Milwaukee County, 7.14 percent; Waukesha County, 8.65 percent; Ozaukee County, 6.22 percent; Washington County, 7.31 percent; Kenosha County, 3.90 percent; and Racine County, 4.30 percent.
"The previous year was characterized by modest gains in the leasing market and continued strength of the sales market. We fully expect to see more of the same in 2005," Polacheck reported in its 2005 Real Estate Market Review & Forecast. "Although there are signs of improvement, the rising costs of energy, oil and raw materials will continue to hamper a full recovery in the market. This will be compounded by continued uncertainty in the Middle East.
"The industrial land at the west end of (Milwaukee’s) Menomonee River Valley could come online by autumn of 2005. If the land is priced appropriately and the covenants are not too restrictive, we would anticipate quick absorption of this development," Polacheck stated.
February 4, 2005, Small Business Times, Milwaukee, WI