Strong economic development and accelerated growth renew investors' interest in the state.
When the national economy has indigestion, we maybe have a hiccup," says Martin Brickman, president of Milwaukee-based The Polacheck Co. Failing health is not on the agenda for Wisconsin where unemployment is at an all-time low of 3%. Milwaukee, the state's most populous city, is undergoing the largest construction boom in its history. An estimated $2 billion is being invested into the city's infrastructure.
Germantown, Sussex and Pewaukee are experiencing accelerated growth in land development, industrial, multifamily and retail real estate.
Madison, the state capital, was rated for its quality of life as the most desirable city to live in America by Money magazine. Development is surging from Milwaukee north through the Fox River Valley to Green Bay. The economy is stable and strong in Fond du Lac, Oshkosh, Neenah/ Menasha, Appleton and Green Bay.
Brickman says the residential, office, industrial and retail markets are hot in Racine and Kenosha, and the paper industry is on an upswing in the Fox River Valley where retail development has followed industrial development along the US highway 41 corridor.
Office demand pushes westward
"There's no new office buildings proposed for downtown metro Milwaukee and that market is lagging in the leasing of Class-A space," says Jack Jackobson, senior vice president of Mooney LeSage.
"There has been a redevelopment of office buildings for other purposes," says William Bonifas, executive vice president of The Polacheck Co. "The Class-B office market was beat up very badly and had a vacancy rate of close to 20%," Bonifas says. "Although they're starting to recover, if new business moves in, they generally don't go downtown."
Patrick Gallagher, president of Siegel-Gallagher Inc. and chief financial officer of Siegel-Gallagher Management Co., says that the vacancy rate in the suburbs is about 17%. He cites average rental rates for the overall area for Class-A product between $17 and $22 per sq. ft., with Class-B going between $10 and $16. "The predominance of A (space) is clearly east of the river," says Gallagher.
"What little positive absorption there is, is starting to have an impact," says Bill Meier Jr., president of Siegel-Gallagher.
Jackobson says the suburbs are very strong and the overall trend is to move west. "There is suburban space north and south, but it's not as strong and doesn't have the same potential for the future as the west does," says Jackobson."There are at least nine speculative office projects totalling about 870,000 sq. ft. of space on the drawing board, so there's a lot of pent-up demand in the suburbs, and it's difficult to find a contiguous space over 10,000 sq. ft."
Steve Schnoll, senior vice president of investments for Mooney LeSage, says: "You see institutional buyers chasing good income-producing Class-A office space like Opus North. There is incredible demand for suburban space predicated by a lack of development over the last five years."
According to Meier, most of the new development is coming on line in suburbs like the I-94 corridor.
"Part of the reason for the office growth west is that Madison is west, and Milwaukee is the financial center, so they're growing together because office is more connected to government," says J. Michael Mooney, principal of Mooney LeSage.
Scramble for retail space in suburbs "Essentially every retailer that comes to this market scouting for a site immediately focuses onto the Bluemound Road corridor," says Andy Bruce, executive vice president of Mooney LeSage.
Bruce says that the driving force in the market now is the expansion of grocery stores. "There's no less than 10 food store-anchored shopping centers on the drawing board at this point in time, which would total 1.2 million to 1.5 million sq. ft. coming on line in the next 12 to 18 months."
He says that there is also activity in grocery-anchored strip shopping centers, mostly in the suburban markets, with sizes of the total centers being 80,000 to 150,000 sq. ft. "For in-line shop space, in the 1,200 to 5,000 sq. ft. range, if there was any space available, you'd be looking at rents in the $20 per sq. ft. range which, when it does become available, is snapped up immediately," Bruce says.
Bonifas says most of the expansion in retail is in development of free-standing buildings and supermarkets.
"It's taking place mainly in the suburban markets to the north, west and south of Milwaukee," says Brickman. "I think that we're going to see more development downtown, spurred by the convention center and more residential development on the perimeter of the city of Milwaukee and out of Milwaukee County along the freeway corridors, which, in turn will spur development of new retail in those areas."
Industrial expansion follows I-94 "There's approximately 8 million sq. ft. of vacant industrial space," says Tony Bareta, a senior vice president of Mooney LeSage. "The suburban areas have been attracting a lot of the industrial development adjacent to the freeway and interstate network, especially I-94, which is the connection between Milwaukee, Madison and Chicago."
"Industrial vacancy rates are the lowest they've ever been," says Bareta. "The vacancy rate is less than 10% across the board and, in newer space in more modern buildings, it's probably half that. It's very tight."
Todd Rizzo, development manager of Milwaukee-based WISPARK Corp., a real estate subsidiary of Wisconsin Energy Corp., says: "Anything along the I-94 is a big draw from a distribution perspective for movement of product and goods. It's a better way to draw employees. For our parks, we're marketing ourselves to the metro Chicago area, because the land costs, electric rates, and taxes are lower in Wisconsin."
Rehab downtown lures multifamily "What's happening is that people are becoming turned-off with the sprawl type (suburban) development and rediscovering urban design," says Milwaukee's Mayor John O. Norquist. "People want to live in residences in rehab Class-C space."
Siegel-Gallagher's Meier says, "There used to be a flight out of downtown and now there's movement in again."
"There's somewhat of a renaissance downtown," agrees Gallagher. "There has been a lot of public/private partnerships going on with major improvements not only in infrastructure like the Riverwalk, but the (Midwest) Convention Center, Discovery World and the Imax museum, so that's creating a lot of excitement."
"What's happening downtown is there is adaptive reuse of obsolete buildings, like Gimbel's, the Cawker building and the Nelson Brothers furniture warehouse that are bringing people to live back downtown in all walks of life," says Steve Palec, senior vice president of The Polacheck Co. The city is providing the land for the $10.5 million Library Hill Apartments, slated for completion in early 1999.
On the north edge of downtown, the Mandel Group broke ground on a 110-unit luxury apartment building overlooking Lake Michigan, as part of its $85 million East Point redevelopment.
Hotel expansion is in the works "Hospitality is a very important part of the overall economy here," says William Hanbury, president and CEO of the Greater Milwaukee Convention and Visitors Bureau. The second phase of the Midwest Express Center is scheduled to be completed in 1999. Although the hotel occupancy rate has been flat at around 64% to 68% for the last couple of years, Marcus Corp., the owner of the Hilton, is doing a $25 million expansion, and there's an $8 million renovation of the Hyatt to be finished in mid-1988.
"I think we're going to see a very positive trend," says Hanbury. "Much of this new economic renaissance is being driven by investments in attractions and facilities that will boost Milwaukee's position nationally in the hospitality industry."