Southeast Wisconsin’s vacancy rate has made a remarkable recovery since its all-time high of 12.31 percent posted in the third quarter 2009, reaching 6.17 percent at the end of 2012, according to an industrial market report by Colliers International. One year ago, the vacancy rate totaled 7.44 percent.
Colliers International notes that Southeast Wisconsin’s vacant industrial supply measured 2.9 million square feet, falling below 3.0 million square feet for the first time since the second quarter of 2008 when 2.9 million square feet were available. Large users looking for new product will find only one large vacancy totaling 316,800 square feet.
Colliers International predicted that big box speculative development will return to the market in 2013.
“I think we’re going to see some decline in the vacancy rate, but I don’t think it’s going to be dramatic,” said Roger Siegel, executive vice president at Jones Lang LaSalle. “That said, there are manufacturers that are looking for property, and there has been a conspicuous absence of quality manufacturing property.”
Tom Boyle, principal with Newmark Knight Frank Epic, said a lack of class A industrial buildings and bulk land sites in Lake County Illinois should benefit Southeast Wisconsin.
“The Lake County market over the past three or four years has been relatively weak from a demand perspective,” he said. “But in the past 12 months, it has really started to dramatically improve. So I think that is going to create a lot of new demand for Southeast Wisconsin. Companies 12 to 24 months ago that would have never considered crossing the state line are now very strongly considering crossing the state line because there are very few class A opportunities in northern Lake County.”
Boyle added that the fiscal situation in Illinois is driving many companies to Southeast Wisconsin as well.
“Large employers are concerned about the fiscal stability of the State of Illinois from a long-term perspective,” he said. “I think companies are much more open-minded about considering Wisconsin as a viable alternative now.”
Leasing and sales
Leasing activity in Southeast Wisconsin measured 893,800 square feet in 2012, an 11.2 percent increase from the 803,900 square feet posted in 2011, according to Colliers International. Tenant demand for larger spaces contributed to the positive results.
Colliers International pointed to two significant leases that were signed in Southeast Wisconsin in 2012. Integrated Merchandising Systems Inc. leased 310,000 square feet in Kenosha and CNH America occupied 200,100 square feet in Yorkville. The largest 2011 transaction was National Material Properties’ 187,200-square-foot lease in Kenosha.
“Leasing in the market has been moderate, yet predictable,” Boyle said. “The Southeast Wisconsin market is not a market that does a large volume of deals. Typically, it can do anywhere from two to five 250,000-square-foot-plus transactions.”
The Southeast Wisconsin market recorded eight sales in 2012 totaling 397,900 square feet, according to Colliers. In 2011, eight buildings were sold as well with a total volume of 461,600 square feet.
The largest sale transaction of the fourth quarter involved Meijer purchasing the 580,000-square-foot distribution building located at 7400 95th St. in Pleasant Prairie from grocery retailer Supervalu, according to a market report by NAI Hiffman. The company plans to build three new stores in Wisconsin.
“Certainly the Racine and Kenosha corridors have seen a lot of activity and I think that’s really where you’ve seen the big deals,” Siegel said.
Southeast Wisconsin’s net absorption measured 647,400 square feet, rising 12.7 percent from one year ago activity of 574,400 square feet, according to Colliers. Steady user demand coupled with nominal space reentering the market resulted in Southeast Wisconsin’s improved outcome.
“I think our market in Southeast Wisconsin really is symptomatic of what’s going on in the economy,” Siegel said. “There is activity. There’s not as much as we’d like to see, and it’s characterized by very slow growth and the economic climate at this point.”
Announced at the end of the fourth quarter, CenterPoint Properties and Wispark LLC plan to build a 471,043-square-foot build-to-suit facility for Taiwan-based Ta Chen International Inc., according to NAI Hiffman. Construction is anticipated to begin once the ground thaws this spring.
National developer Majestic Realty Co., based out of Los Angeles, has announced plans to build a 1.2 million-square-foot speculative distribution facility on the land they recently purchased east of Highway H and south of Highway 50 in Pleasant Prairie. The project is anticipated to break ground in the spring of 2013.