The Milwaukee area’s office vacancy rate will spike in 2004 to 17.2%, its highest point since The Reis Reports Inc. began tracking the rate in 1998.
The asking rent for offices in the Milwaukee region will slightly increase .3% to $17.81 per square foot in 2004, according to the Reis forecast.
Regional office space projections by several of the area’s commercial real estate brokerages corroborate the Reis forecast.
"A high volume of new construction projects in the metropolitan Milwaukee office market presented new challenges and opportunities that point to 2004 as the year to ‘back-fill’ excess space," stated the Grubb & Ellis/Boerke Co. in its new 2004 Commercial Real Estate Forecast for the Great Lakes States.
The downtown Milwaukee office market was a net gainer in 2003, reversing years of businesses moving out of the city to the suburbs.
Roundy’s Inc. moved from Pewaukee to the 875 E. Wisconsin building that opened up downtown last year. Bank One moved 750 jobs from Menomonee Falls to its downtown Milwaukee office building.
The reverse migration to downtown has enflamed competition among office property owners in the suburbs, according to the 2004 commercial real estate outlook that is being prepared by NAI MLG Commercial in Brookfield.
"Landlords in the suburban market have been very aggressive in pursuing new tenants and attempting to keep existing tenants. Concessions include free rent, increased TI’s (tenant improvements) and price reductions," the agency reported.
In downtown Milwaukee, a game of office musical chairs has been playing out as building owners and managers attempt to fill space that was vacated by tenants in 2003.
The Bank One jobs now occupy much of the space that was vacated when the Whyte Hirschboeck Dudek law firm moved out of the downtown Bank One building to 60,000 square feet of space in the new Cathedral Place building at 555 E. Wells St.
Federal government offices, including the regional offices for the U.S. Forestry Service, moved into 92,000 square feet of space at the Gas Light Building, 626 E. Wisconsin Ave., vacating space at the Reuss Federal Plaza, 310 W. Wisconsin Ave.
The downtown east office market’s vacancy rate at the end of 2003 was 17%, far less than had been feared by The Polacheck Co.
"In last year’s report, we exercised a great deal of caution, indicating that at the time we were riding the ‘calm before the storm,’" Polacheck stated in its new 2004 Market Review & Forecast. "Reference to the ‘storm’ hinted at the fact that there would be approximately half a million square feet of newly constructed or newly renovated office space available downtown, and we expected vacancies above 20%. We are surprised but happy to report that no severe storm materialized, and the vacancy rate is 17%."
Polacheck reports the following sub-market office vacancy rates in the region: Brookfield, 23%; downtown east, 17%; downtown west, 18%; Mayfair/
Wauwatosa, 15%; Northshore/Ozaukee County, 17%; Waukesha, 15%; West Allis, 29%; and Woodland Prime/northwest side, 19%.
The sore thumb in that report is West Allis, but Polacheck believes that city is turning the corner and is poised for a rebirth.
"With the recent renovation and addition to Summit Place, however, there is an excess of 100,000 square feet of high-quality new and loft office space available in this sub-market. There were several pre-leases that may bode well for this project," Polacheck said.
In Brookfield, some significant large tenants have traded spaces within the submarket, but smaller offices are abundantly available.
"Some small users have as many as 30 to 40 options available to them," Polacheck reported. "At the current time, there is nothing under development, so we expect this market to stabilize and provide few options for larger users. This will probably kick off another round of development, as new projects are built for larger users seeking space."
The south side of Milwaukee County will receive a boost when Northwestern Mutual Life Insurance Co. completes construction this year on it $125 million office building and parking structure along South 27th Street at the border of Franklin and Oak Creek.
The wildcards in the metro Milwaukee office market involve forces that local brokers and developers cannot control:
— The final shoe has yet to drop on the Bank One equation, as the company recently announced that it plans to be acquired by JP Morgan Chase for $60 billion. The fate of hundreds of Bank One jobs in Milwaukee is unknown.
— GE Medical is dangling its potential 300 high-tech jobs to the city and the suburbs, daring them to jump high with development incentives. Many of the GE Medical jobs are based at the Woodland Prime at Heritage Reserve complex in Menomonee Falls. Bruce Behling, president of Heritage Reserve Holding LLC, is hoping to keep them there. However, like his downtown counterparts and developer Peter Bell of the Pabst Farms project in Oconomowc, all Behling can do at this point is await word from GE Medical. "I think I had dark hair when it started, and I may be bald when it ends," Behling said.
— The City of Milwaukee and Milwaukee County are finalizing plans for redevelopment of land along the former Park East Freeway spur, which was demolished in 2003. Those plans could be subject to stipulations of living wages for the employees of the businesses that move to the strip. The stipulations and the pace of redevelopment could depend upon whom is elected the next mayor of the city.
Feb. 6. 2004 Small Business Times, Milwaukee
