Retail v Wisconsin

Milwaukee CRE market a smooth machine today

  
Milwaukee CRE market a smooth machine today,ph01
The new arena for the NBA’s Milwaukee Bucks is providing another boost to the city’s CRE market.

Like many Midwest markets, Milwaukee is enjoying a rise in commercial real estate activity this year. This has been good news for the brokers working this market, including those with the newly formed Founders 3, the company resulting from the merger of Milwaukee-area firms Commercial Property Associates, RFP Commercial and Siegel-Gallagher Management Company.

Midwest Real Estate News spoke with several of the leaders of Founders 3 about what’s behind the busy times in this key Midwest city.

Midwest Real Estate News: Let’s talk about how some of the main commercial sectors in the Milwaukee area are performing. They’re all doing pretty well right now, aren’t they?

Steve Pape: I can speak to the office market because that is my specialty. Compared to five years ago, we are in the middle of an upward trend, one that is continuing this year. We are seeing decreasing vacancy rates and a slight increase in rental rates, which is encouraging, mainly in class-A buildings. We are also seeing reduced concessions and increased development overall in the office market.

The interesting thing is that in addition to those items, construction costs have gone up, too. That has contributed to some of the rental rates increasing, too. Overall, it has been a very positive trend that we have continued to see.

MREN: How about retail? How is that sector performing?

Tom Bruss: Retail has really exploded during the last five years. In Milwaukee, we have seen more new product in the last five years than in the previous five or 10 years before that. Retail has continued to change. It has shifted. The traditional mall operators are seeing their sales decline. The discounters, places like Ross Dress for Less, Sierra Trading Post, have really expanded. They are taking a larger share of those retail dollars today.

Jon Thoresen: Entertainment uses are becoming more important for retailers here, too. These kind of uses are bringing more people to the shopping centers. Landlords didn’t traditionally want those clients. Now they do. Entertainment uses, like trampoline places, inflatable places, were once considered negatives. Now they are looked at as a positive.

Bruss: We will see more of that as the traditional department stores struggle. We are seeing landlords having no choice but to get more creative to fill those mall and retail centers up. They are a lot more willing to do what they can to keep those malls viable.

MREN: How busy is the downtown area of Milwaukee today?

David Behnke: If you look at downtown Milwaukee, you’ll see a lot of activity on the office side, a lot of new office building going on. That is being driven in part by the desire of folks wanting to be closer to where they work. We are seeing a ton of new residential going up in downtown, too, because of this. People want to live downtown and be close to work and public transportation. That, in turn, is spurring new retail activity downtown. This has had a positive impact on the entire Milwaukee market. The residential, commercial, retail, office and industrial are all doing quite well.

Pape: The companies in the Milwaukee market recognize that their workforces are aging. A lot of their longtime workers are either retiring already or getting ready to retire. The next coming up are the Millennials. To attract them, the next generation of workforce, companies have to work in an environment that appeals to these younger workers. These workers want to be in urban, downtown areas. That, in my opinion, is the biggest factor in why downtown is doing so well today. The multifamily explosion? That is happening for the exact same reason. That is why you are seeing a gravitation toward downtown Milwaukee.

MREN: Earlier, you mentioned how retail is changing. Why are the discount retailers doing so well in Milwaukee today?

Thoresen: I would say that the big-box retailers haven’t evolved to the consumers’ needs and desires. They have to adjust. You are starting to see some of them doing that. But the old dinosaurs of retail, if they keep operating like they did in the past, they will be gone. If you don’t change with the times, you’ll turn into a dinosaur.

On a positive, we are seeing retail rental rates rising higher, too. The Third Ward area is commanding much higher rents today. You have businesses like Shake Shack moving in there. There are a lot of national boutique-style retailers coming into the Third Ward area. We are also seeing a lot of mixed-use projects that are also commanding higher gross rents. There are new restaurants coming that we expect to be extremely successful. Smaller-format, physical retail is not going away. It is here to stay. Specialty retail is strong here in Milwaukee.

MREN: What is it about Milwaukee that makes this such a solid market for companies?

Bruss: There is a lot of stability from an employment standpoint. We have a population base that never grows that significantly but never falls that much, either. Today, more people are coming back to downtown. Downtown has become a place where businesses are reinvesting in the central business district. That growth is helping to feed all those segments.

Behnke: There is the livability standpoint, too. Places like the Third Ward have grown over the past decade. The Fifth Ward, too, has grown. If you look to the north, there is a ton of redevelopment, office, retail, apartments. It’s all being fueled by people wanting to be downtown. Northwestern Mutual not only stayed in town, but built a new tower, too. Then Northwestern built a second tower of residential units. The Milwaukee Bucks are building a new arena. They are multi-use sites going on all around the downtown area. If you look at Milwaukee and sat down at the map, you’d see new activity everywhere.

Thoresen: We do need to say it: That entertainment area around the new Milwaukee Bucks arena is going to be a tremendous addition to the city. It is going to be a game changer for that part of town. It will bring in new hotels, residential, office and retail. Some of the retailers wouldn’t have looked at this part of town if it wasn’t for the new arena.

Pape: For me, the easiest way to sum it up is that Milwaukee is a big city with a small-town feel. It’s a Major League Baseball city, an NBA city. It’s a destination city. That livability combined with that small-town feel is what makes it such an attractive place.

MREN: I know it’s difficult to predict the future, but what do you see happening in the next several years in Milwaukee’s CRE market?

Pape: I think we’ll continue to see a lot of activity. What we ae seeing on the development side today is unprecedented.

Behnke: The skyline is certainly changing in Milwaukee.