Southeast Wisconsin has remained an unmined gem compared to neighboring submarkets, but it’s unlikely it will stay that way for long as the region continues to making a name for itself as a hub for industrial end users.
Recently, Illinois Real Estate Journal turned to Colliers Executive Vice President Ned Frank and HSA Commercial Real Estate Vice Chairman and CEO Robert Smietana to discuss the region’s industrial market in greater detail, as well as specific projects currently underway.
Illinois Real Estate Journal: What’s unique about the region that makes it an attractive location for industrial end users?
Ned Frank: The area is unique in that it is still an untapped market. Everything that an end user could want is available, like abundance of labor, direct access to an interstate, ongoing construction of modern warehouses, and municipalities that work hard to not only keep companies in the region happy, but to attract new business. It’s evident as you continue to see companies look to relocate across the border into Southeastern Wisconsin.
Robert Smietana: In Southeast Wisconsin, industrial end users can find large parcels of improved land available to accommodate buildings of one million square feet or more with plenty of space for trailer parking as well. These users are also attracted to the easy access to Interstate 94, which has recently been expanded to eight lanes, four in each direction, for quick deliveries to customers in the Milwaukee and Chicago metros. In addition, the region benefitted from the hundreds of millions of dollars in infrastructure improvements made in recent years to draw large corporations to the region. Finally, industrial end users enjoy a lower cost of business compared to Illinois while maintaining proximity to customers in both states.
Illinois Real Estate Journal: What does the supply/demand ratio look like in the region? Is there enough supply to match the demand?
Frank: Last year experienced record supply and demand in the region, with developers delivering 18 buildings totaling 6.9 million square feet during 2022, 73% greater than the previous record of four million square feet in 2021. Despite this large amount of supply, the net absorption in 2022 totaled 4.7 million square feet—another record for demand.
This year, developers continue to build and will deliver 13 speculative projects totaling 5.8 million square feet across the market, and it’s safe to assume that the supply will match the demand.
Smietana: Fewer new industrial buildings will deliver in 2024 because of the higher cost and lower availability of capital, which will create a tighter market for tenants. While demand for space from manufacturers and warehouse tenants has slowed, vacancy rates in Southeast Wisconsin remain near historic lows. Fewer new construction projects on the horizon will keep absorption rates from falling.
Illinois Real Estate Journal: How have rising interest rates affected activity in the region? Has this affected the pace of construction of new projects and/or the amount of investment activity in the sector?
Frank: The region did not seem too affected by rising interest rates what with the record-setting supply and demand in 2022, also shown by how much supply will also be delivered in 2023. The largest lease transaction between Illinois and Wisconsin at 1,048,961 square feet was executed in Southeastern Wisconsin, which further proves that the region is being paid more attention in terms of new projects and investment activity.
Smietana: Short-term interest rates quickly rose from near 0% to levels over 4.5%, which is starting to slow the economy as intended. Because of rising rates, some lenders are not lending, so we’re seeing fewer new construction starts, which will keep vacancy rates from rising.
Illinois Real Estate Journal: What specific industrial projects are going on in Southeast Wisconsin that are especially exciting?
Frank: There are a lot of exciting projects to come in Southeast Wisconsin. One of the projects that stands out to me is the 288,000-square-foot cargo facility that Crow Holdings will be building at General Mitchell Airport, another example of an untapped resource the area has to offer.
Smietana: Construction on a 550,647-square-foot speculative warehouse, the first of three buildings in HSA Commercial’s new Bristol Highlands Commerce Center West, is nearly complete. Located at the southwest corner of 136th Avenue and Wilmot Road in Kenosha, Wisconsin, the new 82-acre warehouse park will total 1.3 million square feet upon full buildout. Scheduled to deliver in Q3 2023, the building will feature 40-foot clear heights, 79 truck docks, four drive-in doors and parking for 106 trailers and 256 cars. The space will be leased by CBRE.
When complete, Bristol Highlands Commerce Center (East and West) will comprise six buildings containing 2.4 million square feet of industrial space.