The Milwaukee office market was surprisingly resilient in 2023, ending the year with positive net absorption for the first time since 2019, according to new research from JLL.
But 2024? JLL says that economic headwinds remain and might make it challenging for the sector to repeat that performance this year.
JLL in its fourth quarter 2023 Milwaukee office report, said that the Milwaukee office market saw 31,890 square feet of net absorption last year. Unfortunately, the positive absorption didn’t help the market’s vacancy rate: The Milwaukee-area office sector started the year with a high vacancy rate of 23.2%.
According to JLL’s report, Milwaukee’s CBD outperformed suburban areas. JLL said that the central business district saw more than 180,000 square feet of net absorption of office space in 2023.
This resilient performance continued in the third quarter, with the Marcus Corp. leasing more than 50,000 square feet of office space at the Associated Bank River Center and U.S. Citizenship and Immigration Services leasing more than 20,000 square feet at 310 W. Wisconsin.
How strong was the CBD compared to other Milwaukee submarkets? JLL said that the CBD accounted for nearly 70% of all office leasing activity in the Milwaukee area last year.
Part of this can be attributed to size. As JLL reported, the average lease size in the CBD came in at more than 23,000 square feet last year. The average office lease size was just under 10,000 square feet in suburban submarkets.
Sales activity was down last year in the Milwaukee office sector. This should not come as a surprise: Higher interest rates slowed transactions in all sectors in 2023. Add in the struggles that the office sector faces because of the work-from-home movement, and it’s not shocking that investors weren’t buying as many office properties last year.
A slow year on the transaction side, though, ended with a relatively large deal in the Milwaukee market, as Woodside Capital Partners purchased One & Two Riverwood Place. The two-building 205,646-square-foot office campus sold for just more than $57 a square foot. The property was nearly 70% occupied at the time of the sale.
What to expect in 2024? JLL said that it expects a similar year from Milwaukee’s office market. As JLL says, the office sector still faces economic headwinds and plenty of uncertainty. It’s certain that many tenants will continue to reevaluate their office space needs, with many electing to reduce their footprints in 2024.
JLL predicts that tenants will continue to prioritize high-quality amenity-rich office space and that Class-A office leasing will continue to outpace Class-B space.
