Conditions continue to tighten in the Southeast Wisconsin submarket, as vacancy has dropped below 8 percent and only 10 options for more than 100,000 square feet of contiguous space are currently available, according to a recent industrial market report by NAI Hiffman.
The Southeast Wisconsin submarket has now witnessed improving conditions for the past four-and-a-half years. Vacancy dropped 15 basis points during the fourth quarter to 7.66 percent, an improvement of 1.34 percent over the course of 2013, according to NAI Hiffman.
The report notes that net absorption finished the year strong with 610,281 square feet of space absorbed during the fourth quarter. This brought the year-to-date tally to just more than 1.2 million square feet of positive net absorption for 2013.
Thomas Boyle, principal at Transwestern, estimated that the Class A vacancy rate in Southeast Wisconsin is about 5 percent. He said many manufacturers and distribution companies coming from Lake County Illinois, Milwaukee County Wisconsin or from out of the area are looking for quality, Class A product.
“These companies require 24-foot clear minimally,” he said. “They’ll consider 24, but they’d actually prefer 28 feet clear or 30 feet clear. That’s what spurs the developer demand for sites. Companies will not be able to find what they want in existing product so they’re going to have to build. A developer who’s got a project teed up will capitalize on that opportunity.”
NAI Hiffman predicts development activity will continue to increase in Southeast Wisconsin over the coming year due to favorable market conditions.
Examples of recent development activity include a 471,043-square-foot build-to-suit facility for Ta Chen International Inc. and a 118,500-square-foot addition to McLane Foodservice’s existing facility. A 1.1 million-square-foot build-to-suit for Amazon.com also broke ground during the fourth quarter. Amazon has also announced plans for an additional 600,000-square-foot building to be built just to the east of this building, set to break ground this spring, according to NAI Hiffman.
Construction continues on a 425,000-square-foot build-to-suit for United Natural Foods Inc. and a total of 572,112 square feet of building additions for Rust-Oleum, Meijer Inc., and Kerry Ingredients & Flavours, all expected to be completed this spring.
Zilber Property Group also is breaking ground this spring on a 176,000-square-foot industrial spec building in LakeView Corporate Park in Pleasant Prairie, Wis. The project represents the sixth spec building that Zilber Property Group has developed in LakeView Corporate Park in as many years. Currently, the company owns more than 20 industrial buildings and more than 60 acres of future development land in various business parks in Southeast Wisconsin. This has resulted in Zilber Property Group developing an industrial portfolio in Southeast Wisconsin that currently has more than 70 tenants.
Boyle said developer interest in land continues into 2014.
“Right now there are a lot of developers interested in qualifying sites in Kenosha County and Racine County,” he said. “I think there is some good activity, meaning there are a lot of companies circling the market and evaluating alternatives. That leads me to be very bullish on the market.”
However, Boyle said he does not think there are enough land sites that are ready to accommodate immediate developments in 2014, which will result in increased land prices.
“When people drive up and down I-94, they see a lot of vacant land, but the problem is that few of these sites have the utility infrastructure, such as sewer and water,” he said. “Sometimes that is very costly to bring in from two to five miles away.”
The only significant sale during the fourth quarter involved First Industrial Realty Trust purchasing the 626,784-square-foot industrial facility at 10100 58th Place in Kenosha for $28.3 million, according to NAI Hiffman. The building is fully leased to supply chain supplier IMS Fastpak. The two largest leases signed during the fourth quarter were for retail giant Amazon.com’s new 1.1 million-square-foot and 600,000-square-foot build-to-suit facilities in Kenosha.
There also were several smaller deals in Southeast Wisconsin toward the end of 2013, Boyle said.
“There were a number of deals in the 50,000- to 150,000-square-foot range and that’s still the bread and butter for the Chicago industrial market,” he said. “That user has come back relatively strong in the third and fourth quarters of 2013 and I anticipate continued growth in that sector. Usually for every bulk deal you see in the 400,000- to 600,000-square-foot range, you see probably 10 between 50,000 and 150,000 square feet.”