Surprisingly resilient. That’s what a pair of commercial real estate pros said about the performance of the CRE market in Milwaukee and its suburbs throughout the COVID-19 pandemic.
As in all cities, real estate pros in this slice of Wisconsin worried that the pandemic, when it first grabbed headlines in March of 2020, would throw the commercial real estate market and the economy in general into chaos. But while there were slowdowns – more in some commercial sectors than in others – the commercial real estate market here remained mostly steady throughout even the scariest days of the pandemic.
What’s behind the resiliency of the Milwaukee-area market? Midwest Real Estate News spoke to two CRE veterans in this city about that. Their responses? The Milwaukee area benefits from a great location, near plenty of transportation options. The workforce here is strong and ready to work. Local governments are friendly to businesses. And demand remains high for commercial properties, especially for multifamily buildings and industrial facilities.
Busy times for Irgens
Need proof of the strength of Milwaukee’s CRE market? Just look at the schedule of one prominent real estate developer here.
Developer Irgens remains extremely busy in Milwaukee. Tom Irgens, executive vice president with the firm, says that Irgens is currently involved with four significant projects in the Milwaukee market.
Irgens is now putting on the finishing touches on two buildings in the Brookfield, Wisconsin, market. One is a 450,000-square-foot build-to-suit that will serve as the corporate headquarters for Hydrite Chemical Company.
The second is an 186,000-square-foot office building mostly leased to Milliman, an international actuarial and consulting firm. Milliman is scheduled to move into that building, known as the Golf Parkway Corporate Center, this summer.
Irgens has signed two additional leases at this building, one with an accounting firm and another with a regional bank.
Irgens also purchased 25 acres of land from the University of Wisconsin-Milwaukee in Wauwatosa. On May 1, the company will break ground on a 70,000-square-foot three-level office building here and a two-story, 633-stall parking structure. Irgens has received permission, too, to build a six-story 178,000-square-foot office building on the same site.
The University of Wisconsin-Milwaukee Innovation Campus is designed to be environmentally friendly, with all buildings reaching for LEED-certification. The project has also received a SITES designation, meaning that the entire site, and not just its buildings, will follow certain green principles.
This means that the site will feature native landscaping and heightened stormwater management practices. The parking structure will feature a green roof with a solar array.
“This is a very exciting project for us,” Tom Irgens said.
Irgens has also purchased a vacant office building in the Milwaukee County Research Park in Wauwatosa that was previously occupied by United Healthcare. Irgens plans to renovate the existing building and use additional land on the site for a 180-unit multifamily development and an 8,000-square-foot retail building.
“We see the future of suburban office parks as being amenitized with housing and other service-type businesses that provide services to the office park occupants,” Irgens said.
Work at the existing office building will include a redo of the lobby and a reworking of the parking areas. Irgens will add common-area amenities such as a fitness center with lockers and showers, tenant lounge, new conferencing areas and outdoor patio space.
This amount of activity is clear evidence that Irgens expects continued demand for office and multifamily space in the Milwaukee market.
“We are seeing a definite flight-quality and a willingness of users to pay for quality product in the office sector,” Irgens said. “Companies want amenities in their office spaces. They want the newer HVAC systems and they want to be in good locations that are convenient for their team members. They want to be in vibrant suburban locations that offer local restaurants and retail options.”
Irgens is seeing this in its Wauwatosa and Brookfield projects. Irgens said that the number of new leases during the last six months has been high. This includes new tenants leasing space, tenants that are renewing and some that are expanding their footprints.
This doesn’t mean that the Milwaukee office market isn’t facing challenges. Older office buildings are not as attractive to tenants today, Irgens said. Many of these are being converted to new uses, such as a large office building at the Mayfair Mall in Wauwatosa that has been converted into a hotel. Other obsolete office spaces are being turned into multifamily buildings.
One sector that isn’t seeing many challenges? Multifamily. Irgens said that demand for multifamily development remains strong throughout the Milwaukee market. This is especially true in suburban markets where there hasn’t been much construction of new apartment product in many years.
“At the same time, you see limited growth in single-family housing,” Irgens said. “And the single-family homes that are available are more expensive. Municipalities realize that having alternative housing options both market-rate and affordable are important for the ecosystems of their communities. These municipalities have become more receptive and open to quality multifamily developments in strategic locations.”
Katherine Bills, a shareholder who works out of the Milwaukee and Chicago offices of Milwaukee-based law firm Reinhart Boerner Van Deuren, said that commercial real estate across the country and in the Milwaukee market has proven to be especially resilient during these challenging times.
And when it comes to the country’s strongest commercial sectors, multifamily and industrial? Bills said that the Milwaukee market, and the entire state of Wisconsin, is well-positioned for even more growth in the future.
Bills pointed to Milwaukee’s proximity to both Mitchell Airport in Milwaukee and O’Hare International Airport in Chicago as one reason for this bright future. The Milwaukee area also has plenty of land on which to build and a strong workforce that Bills said is ready, willing and able to work.
“And then when you compare our market to Illinois, costs are cheaper here,” Bills said. “It’s the perfect storm. You still have the proximity to ship goods through a global airport in O’Hare but it is more cost-effective than if you build just south of the border.”
And while industrial is certainly booming in the Milwaukee market, multifamily is thriving here, too. Bills said that there is a tremendous need for new multifamily developments in both the city and suburbs of Milwaukee.
Part of the reason for this demand is the boom in industrial development.
“As more industrial sites are built in places like Mt. Pleasant, you need housing for the workers,” Bills said. “It’s a nice feedback loop. People are continuing to move to Wisconsin. Because of that, multifamily is a huge need.”
There are other factors behind the growth of multifamily, of course. After the 2008 recession, homebuilders here never returned to their pre-recession levels. This has left a lower supply of new homes in the area.
At the same time, members of the Millennial generation who waited longer than other generations to buy their first homes have now jumped into the housing market in greater numbers. There isn’t enough single-family housing out there to meet the demand for it.
Finally, prices are playing a role, too. Single-family home costs are rising, and it looks like mortgage interest rates will increase in the near future, too. That combination is pricing many would-be buyers out of the market for single-family homes.
“I think demand for multifamily will remain strong,” Bills said. “One of the attractive things about the Wisconsin apartment market is that there are certain segments that are hot but there aren’t all these crazy prices like you sometimes see in L.A. or other cities.”
Not all commercial segments are booming in Milwaukee today. The office market here, as it does across the country, faces uncertainty as companies struggle with when and how to bring their workers back to the office.
Bills said that companies are now reevaluating how they will use their office space.
“You are not seeing companies build out a ton of space right now,” Bills said. “There was a fear at the beginning of the pandemic that there would be a mass exodus of companies giving up 100% of their office space. But we are not seeing that. There is definitely some consolidation. In the last two years, companies, especially larger ones, have been looking at their office portfolio and considering ways to consolidate. But I think a lot of this contraction might have already occurred.”
The retail market in Milwaukee also faces its own uncertainty, with retailers in the suburban areas of the market generally performing better than those located in downtown areas.
The fate of the office market is also impacting the fortunes of the retail market in downtown Milwaukee neighborhoods. It’s tough for retailers in downtown Milwaukee when those office workers aren’t around.
“Everyone wants a vibrant downtown,” Bills said. “But if you are a lunch spot for downtown workers and there are no downtown workers, how do you justify keeping that expensive downtown rented space?”
But Bills said that Milwaukee has one advantage over markets like Chicago when it comes to downtown office and retail: Rents aren’t as expensive.
“If you are a national company with 200 office spaces throughout the country, your per-square-foot Chicago office costs more than your per-square-foot Milwaukee office space,” Bills said. “Those office spaces might house the same number of workers. You might keep the Milwaukee office open because it is more affordable.”
And what does the future hold for Milwaukee? Bills says that no one can predict the future, but she is optimistic that commercial real estate activity will remain strong in the city and its suburbs.
“If the past two years have taught me anything, it’s that no one can really predict anything,” Bills said. “But I think Milwaukee will continue to see strong development activity. The rising interest rates might slow things down a bit, but those rates will still be at historically low levels. So, yes, I am positive about the future of commercial real estate in Wisconsin.”