On the outskirts of the village of Germantown, Milwaukee-based developer Zilber Property Group is busy creating a new 140-acre industrial park that recently was used as farmland.
Gateway Corporate Park is being developed at the intersection of Holy Hill Road and Gateway Crossing, less than a mile east of the I-41 and Holy Hill Road interchange. The park is anchored by a 706,000-square-foot distribution facility for Wauwatosa-based Briggs & Stratton Corp. that’s wrapping up construction, and will soon be home to an additional two speculative industrial buildings, each of which will be roughly 200,000 square feet.
What’s more, just east of the corporate park, a 100,000-square-foot industrial building is being planned for Menomonee Falls-based Dielectric Corp. Once completed, that building will serve as a manufacturing facility and new headquarters for the company.
The developments happening in and near this new corporate park in Germantown are just one example of developers looking further outward for available land to build new industrial facilities. It was not long ago that areas like this were viewed as too far out of the metro Milwaukee market, said Jeff Hoffman, a principal at Cushman & Wakefield | The Boerke Co. in Milwaukee.
“That’s (a) location three years ago everybody was saying, ‘It’s too far north,’” Hoffman said.
So far, 2019 has been a continuation of what the industrial market was seeing last year: Strong demand from users and investors, with indicators such as low vacancies further encouraging developers to push forward with more spec developments and corporate parks.
“We continue to see very strong demand in really every area of (industrial) real estate, ranging from warehouse distribution, manufacturing, new development (and) investment,” said Jim Barry III, president of Milwaukee-based The Barry Co. “We’re marketing several investment properties right now, and there’s extremely strong demand from investors looking to place their capital in industrial real estate.”
Kenosha, Racine, Milwaukee and Waukesha counties are receiving the most attention from developers looking to put up spec buildings. The Racine-Kenosha area, especially communities like Pleasant Prairie, have started attracting the attention of large national developers and investors.
A recent Commercial Association of Realtors Wisconsin report on the industrial market shows in the first quarter of 2019, the vacancy rate for the eight-county region was 3.3%. This matched the vacancy rate for the fourth quarter of last year.
In Kenosha and Racine counties, the vacancy rate was at or just below 3%, essentially flat from the fourth quarter of 2018. In Milwaukee County, the vacancy rate was 5.4%, slightly down from 5.6% in the previous quarter. Waukesha County, meanwhile, recorded a vacancy rate of 1.9% for the quarter, slightly up from the 1.7% in the previous quarter.
Chad Navis, director of industrial developments for Zilber, said vacancy rates may go up for the region in the near term. This is due to the amount of spec industrial buildings that are being built, especially for the area south of Mitchell International Airport. However, this space will likely be quickly filled, given the demand from users that’s out there.
“I would say there is a significant amount of user activity in this area, and I would anticipate by the second or third quarter you’re going to see a market absorption of that space in the marketplace,” he said.
With this strong demand comes challenges, particularly the availability of land in certain areas.
Addressing land availability issues
The demand in the Milwaukee metropolitan area is clearly there.
Hoffman said the longest a new spec industrial building has sat vacant in the metro area recently has been four months. And in the instance of a 193,000-square-foot development in New Berlin, that building was entirely leased three months prior to delivery.
Looking at Milwaukee, especially the primary interstate corridors, it becomes “very problematic” to find a site suited for industrial development, he said. Most developments now require 15 to 20 acres, and finding that much land that isn’t impacted by environmental corridors like wetlands is a challenge.
Barry said it’s becoming increasingly difficult to find large enough tracts of land in a fairly central location in Milwaukee and Waukesha counties, especially. This had led to more industrial projects on the periphery.
Some have even sought to develop infill sites, or find and repurpose an existing building, such as a former big-box retail store.
Another issue lies in the time it takes to prepare a site that isn’t suited for immediate industrial development, such as former farmland on the outskirts of the metro area. Navis said it takes about six to 12 months to bring former farmland online with necessary infrastructure, and on top of that is the development itself. This could add up to two years’ worth of work.
“That’s a long time in our world and usually users do not have two years to sit around and wait,” he said.
Where developers seek to build
The I-94 north-south corridor continues to see plenty of industrial development activity, particularly in the southernmost portion of Milwaukee County, as well as Racine and Kenosha counties.
For instance, Chicago-based developer HSA Commercial Real Estate recently purchased land in the OakView Business Park in Oak Creek, where it plans to construct a 150,000-square-foot spec building. This brings the total number of spec buildings at that business park up to three. A 2.5 million-square-foot warehouse and distribution facility is also being developed for Amazon in the Ryan Business Park just east of the interstate.
Further south in the Racine and Kenosha area, ongoing industrial projects include
the following:
New York-based Ashley Capital LLC is building a new 438,000-square-foot spec building at the Enterprise Business Park in Sturtevant. This is the second building going up in the 90-acre business park, which is planned to have more than 1.3 million square feet of industrial space when fully developed.
Chicago-based Logistics Property Co. LLC recently purchased 106 acres of land west of I-94 as part of plans to develop another three buildings totaling 1.7 million square feet in its 94 Logistics Park development in Kenosha. The first phase of the corporate park includes 1 million square feet across 67 acres.
Dallas-based Hillwood Development Co. LLC, which has ties to billionaire and former presidential candidate Ross Perot, is planning to build two spec buildings at roughly 194,000 square feet apiece in the Grandview Business Park, which lies just west of I-94 in Yorkville.
More developers are now looking at these two counties for a number of reasons, Barry noted. Of course, there is plenty of available land. But beyond that, established facilities like the Amazon and Uline distribution centers in Kenosha County have proven the area to be a place where distribution centers can succeed.
Barry added it is less expensive to build on land in Wisconsin versus in Illinois, and the current political climate is generally more favorable for developers here than across the border.
While not as hot as the outlying areas, Milwaukee County is attracting some industrial development.
Scannell Properties recently broke ground on a 150,000-square-foot spec building on West Carmen Avenue on Milwaukee’s far northwest side. Hoffman said this is the Indianapolis-based developer’s first project in Milwaukee.
Another option for industrial development that has been slow to gain traction is Century City Business Park in Milwaukee’s central city. Good City Brewing will move in to the Century City I building there, marking some progress. But a major impediment to bringing in more companies to Century City is its location, particularly the fact that it isn’t right next to the interstate, Barry said.
Another area to watch for possible infill development, Hoffman said, is along West Canal Street in the Menomonee Valley. His firm is marketing five properties totaling 24.4 acres combined, and said there’s been interest from some developers there.
