Remember when downtowns across the Midwest were booming or when renters flocked to apartment towers in the middle of cities? That momentum came to a halt last March, when the COVID-19 pandemic first hit the country. And downtowns remain mostly quiet, even as life slowly returns to normal.
The good news? This summer looks to be a better one in the United States, thanks to the rollout of COVID-19 vaccines. And the hope is that downtowns across the country will spring back into life.
Consider the key Midwest city of Milwaukee. Jerome Jantzer, sharehoulder with the Milwaukee office of law firm Reinhart, said that Milwaukee was in the middle of a resurgence, one that it had been enjoying for the last decade, before the pandemic hit. This was especially true in the city’s downtown.
And today? Yes, the pandemic has slowed commercial real estate activity throughout Milwaukee. Most office workers are still working from home, leaving downtown Milwaukee far quieter during the day. Many restaurants in the metropolitan area are operating with limited service hours. And tourist traffic has slowed, hurting the hotel industry.
But even with these challenges, Jantzer sees a bright future for the Milwaukee CRE market. As life slowly returns to normal, and the promise of a busier summer beckons, he sees busy times for the city’s commercial real estate industry.
“We came into 2020 on a really strong wave,” Jantzer said. “And remarkably, although there has definitely been an impact from the pandemic, the commercial real estate industry has been resilient across most market categories. And in some, like multifamily and industrial, we have held up really well.”
The office market remains key for downtown Milwaukee, though. Until workers come back in full force, the city’s center will be quieter.
Jantzer said that the Milwaukee office market today is experiencing a slower pace of absorption. Part of that is because of significant new construction. Irgens developed the BMO Tower in downtown Milwaukee, which opened in April of this year. The Huron Building brought 163,000 square feet of new office space to the Milwaukee market in 2019. Then there’s Michels’ Corp.’s $100 million mixed-use R1VER development in Milwaukee’s Harbor District. That project includes an eight-story office building.
“On a short-term basis, it will take some time to absorb this new office space,” Jantzer said. “I do think we will see less office activity in the near future.”
Jantzer said that the post-pandemic office market will also look different in Milwaukee, as it will across the country. It’s not certain how many employees will return full-time to their offices or how many will work partly from home, only going into the office for meetings or collaborative work.
A smaller flow of employees heading into office buildings each day might cause some companies to reduce their office footprint.
“The world has changed,” Jantzer said. “Now that companies realize that their employees can work remotely, and that a lot of employees enjoy that, I see a far greater percentage of people working from home at least part of the time. I don’t think the office market is going away. There are a lot of things about people being together that are important. You can’t replicate that feeling of collaboration and company culture by working remotely.”
Still, office space is a big expense for companies. Those that can get away with leasing less of it might take that opportunity, Jantzer said.
“Companies don’t want to pay for air,” Jantzer said. “They don’t want to pay for a space that is sitting empty. I do think this pandemic will ultimately lead to less demand for office space, including in Milwaukee.”
Other commercial sectors have remained hot during the pandemic, most notably multifamily and industrial. Jantzer said that Milwaukee’s industrial market has been strong for a long time, with vacancy rates currently under 5 percent. Amazon, of course, remains a major presence in the industrial market here. Jantzer said that the industrial market’s momentum has not slowed at all.
Multifamily remains strong, too. Jantzer pointed to the recently opened 7SEVENTY7 project, a 35-story high-end apartment tower in downtown. That building proved that tenants are willing to rent more expensive units in the city. Developers have taken notice, and are planning additional high-end apartments. Ascent by New Land Enterprises is now under construction. This development will bring 259 luxury apartments to downtown.
“I am very bullish on the multifamily market in Milwaukee,” Jantzer said.
Jantzer sees a bright future for the apartment market in downtown Milwaukee, too. Before the pandemic, downtown cores were seeing a steady influx of new renters, people who wanted to live close to the action of ctiy centers. During the pandemic, this demand has slowed. City life isn’t quite as attractive when live shows, theater, sporting events and other attractions are shut down.
But as life slowly returns to normal, Jantzer said, the renters will return to downtown Milwaukee.
“My belief is that the younger, recent graduates, even if they are not going to be working fulltime in downtown office buildings, will return to downtown,” Jantzer said. “The pandemic certainly affected that last year. But I think downtown living is going to come back. People, younger people especially, like to be in a vibrant area like a downtown urban environment. They want to be connected to the festivals, the arts and sports.”
One sector that has been especially hard hit by the pandemic has been retail. But Jantzer said that retail was struggling before COVID-19 started making headlines.
He pointed to suburban shopping malls that have been working to reinvent themselves, adding entertainment and recreation offerings to their rosters. He pointed, too, at big-box stores, which were struggling long before the pandemic hit the country.
“Retail will still face challenges even after the pandemic,” Jantzer said.
Downtown Milwaukee is definitely in need of more retail offerings, Jantzer said. Most of the retailers in the Milwaukee area operate from suburban locations. Downtown Milwaukee still lacks the basic retail amenities, such as enough grocery stores for the peopel who live in the center of the city.
“We need those retailers to make downtown even more livable,” Jantzer said.