Manufacturing a rebound

The Milwaukee industrial real estate market is in better shape than most other metropolitan areas in the country and is poised for a rebound this year, according to new reports by Colliers International and Integra Realty Resources Inc. The Milwaukee area had an industrial space vacancy rate of 7.1 percent by the end of 2004, according to the Colliers report. The report predicts vacancies will decrease, absorption will increase and rents will increase for Milwaukee-area industrial real estate during the first part of this year.
The national industrial space vacancy rate was 9.5 percent at the end of 2004, according to the Colliers report. Milwaukee had the 10th-lowest vacancy rate of the 54 metropolitan areas listed in the report.
"This is very good news for Milwaukee," said James Barry III, president of James T. Barry Co. Inc./Colliers International in Milwaukee. "Our diversified economic base is starting to come back."
In the Integra report, Milwaukee had a 7.57 percent industrial space vacancy rate, compared with the national average of 11.42 percent. In that report, Milwaukee had the seventh-lowest industrial space vacancy rate of 51 metropolitan areas. The report also says the Milwaukee industrial real estate market is nearing the end of a recovery cycle and is about to enter an expansion period.
"Anecdotally, we are seeing a lot of activity," Barry said. "Manufacturing people are looking for crane space. People are looking for rail access. We haven’t seen that in a while."
Milwaukee’s industrial space vacancy rate is lower than most other metro areas in the Midwest, according to the reports. At the end of 2004, Chicago had a 9.5 percent vacancy rate, Cleveland was at 10.1 percent, Detroit was at 13 percent, Minneapolis was at 14.8 percent and Indianapolis was at 8.8 percent.
Some Milwaukee area-industrial real estate brokers predicted vacancy rates would fall this year as the economy continues to recover and the local industrial companies that were strong enough to survive the last recession continue to grow and expand.
"From 2000 to 2004, the vacancy rate went up to about 9 percent at the worst, then it steadily started coming back," Barry said. "I think a lot of these companies have tried very hard to make do with what they have. There is an increasing need for manufacturing and warehouse space. What they are still very reluctant to do is hire people."
Vacancy rates for industrial space in Milwaukee are lower than most other markets in large part because this area had less speculative industrial space built prior to the recession, Barry said.
"We started out with very little speculative space compared to other markets," he said. "Unlike a lot of other cities, like Chicago, where capital went flying in and a lot of space has been built, slowly, we’ve been absorbing space the last few years."
Another factor is that some obsolete industrial buildings, such as the former Allis Chalmers complex in West Allis and old warehouses in Milwaukee’s Historic Third Ward, that were previously vacant, are being been converted to other uses such as office space or condominium space.
The Milwaukee area has a shortage of available industrial sites, Barry said. If industrial vacancy rates drop to about 5 percent, development of new industrial parks could pick up, he said.
However, developers will have difficulty finding large sites for new industrial parks with access to most of the labor force, Barry said. As a result, some obsolete industrial buildings could be torn down to clear space for new industrial development, he said.
Such development could eventually occur in Milwaukee’s Menomonee River Valley, Barry said.
Industrial space vacancy rates in the Milwaukee area should continue to decline this year, Barry said, which will result in increasing lease rates and more speculative development of industrial space.
"Barring a calamity, I would predict going into 2005 and 2006, we will be at a level of (industrial real estate) activity equal to 1999 or 2000," Barry said. "I wouldn’t say we’re there yet, but it will steadily be up there in 2005."
The Colliers and Integra reports give differing views of the Milwaukee area office market.
The Integra report says the Milwaukee area office market is in the later stages of a recession. Intregra says downtown Milwaukee has a 14.7 percent office space vacancy rate, compared with the national average of 16.22, and a suburban office space vacancy rate of 18.68 percent, compared with the national average of 16.19 percent.
"The office market is stagnant," Barry said. "But some of the other cities have vacancies in the 20s. Milwaukee is quite a bit lower than that.
"The office market is probably going to come back and be OK," Barry said. "We’ll probably see a new office tower built (downtown), and the musical chairs (of tenants) will continue. Space will be absorbed slowly."
The Colliers report says Milwaukee had a downtown office vacancy rate of 9.8 percent, compared with the national average of 14.6 percent, and a downtown class A office space vacancy rate of 12.9 percent, compared with the national average of 14 percent, by the end of 2004.
The reports says Milwaukee had a suburban office space vacancy rate of 8.4 percent, compared with the national average of 15.8 percent, and a suburban class A office space vacancy rate of 14.3 percent, compared with the national average of 16.5 percent, by the end of 2004.
Barry plans to eventually build a mixed-use structure on a 25,000-square-foot parking lot his company owns along the east side of the Milwaukee River between Knapp Street and Juneau Avenue.
"We’re considering it," Barry said. "I think we’re trying to think about what the potential mixture should be between office, retail and residential. I’m a bit concerned about office going into this market."
Barry plans to move his company’s offices to the new building, when it is built, and then eventually redevelop the site of the company’s current office building located at 1232 N. Edison St., across the street from the parking lot.
March, 4, 2005, Small Business Times, Milwaukee, WI