The story of Milwaukee’s commercial real estate market is a common one today: The city’s CRE professionals are waiting for stability from the Federal Reserve Board on interest rates. And the hikes that the Fed has already launched have slowed commercial sales in this key Wisconsin city.
There is hope here, though: Katherine Bills, shareholder in the Milwaukee office of law firm Reinhart Boerner Van Deuren, says that while sales have slowed in the Milwaukee market, they haven’t stopped, even with the impact of higher rates. At the same time, leasing activity here remains strong.
Katherine Bills, Reinhart Boerner Van Deuren
In other words, Milwaukee’s commercial real estate industry has remained resilient. And Bills says that she expects better times for the region’s CRE business in the future.
Here is some of what Bills had to say in a recent interview with us about the state of Milwaukee’s commercial real estate industry.
Let’s start with the big question: How have today’s higher interest rates impacted commercial real estate activity in the Milwaukee market?
Katie Bills: I have seen that the pace of transactions is slowing. That’s not to say that deals aren’t happening. They just seem to be taking a bit longer to put together.
The slowdown is driven in part by buyers who are looking to see what financing they can get to make a deal work. Sometimes, those figures aren’t matching up with sellers’ expectations. As of right now, a lot of sellers are waiting to see if conditions get better. Sellers don’t seem to have lowered their expectations. Instead, they are willing to wait it out to see if a deal can come together down the road when market conditions improve.
And if a deal doesn’t happen now? Sellers say they’ll hold onto the asset, continue to collect revenues from it and see what opportunities come down the road.
What are owners and buyers waiting for to get active again?
Bills: Everyone is certainly hoping that the Fed is done raising rates. Everyone involved in the transaction is hoping for that.
It’s important to consider, though, the rate at which interest rates have gone up. It’s been quite a quick rise in rates. As a result, it might take some time for the market to recalibrate.
How about leasing activity? Has that been hit much by higher rates?
Bills: Leasing has remained strong, especially in the industrial sector. There is still certainly a demand for industrial product. We are still seeing strong leasing activity in that sector.
Office leasing, though, has never rebounded from the pandemic in a way that people thought it might. I know last year a lot of people were predicting that there would be a rebound by now in the office sector. That still hasn’t panned out.
Are you seeing any positive signs in the Milwaukee office sector?
Bills: I know that a lot of Wisconsin companies are pivoting back to stressing in-office work. They aren’t asking employees to come back five days a week, but they want at least some mandatory office component. We have seen large national companies making headlines that they want their employees back to the office. That might end up having a positive impact on the sector.
But I don’t know if the office sector will ever look like it did in 2019. We might see some improvements in the office sector because of a push for bringing workers back to the office. But it’s difficult to see it returning to what it was before the pandemic.
Industrial and multifamily remain strong nationally. Is this true in Milwaukee, too?
Bills: Industrial and multifamily are very strong here. It comes back to demand. There is still a great demand for industrial space and housing. That is driving those two sectors.
With respect to multifamily, there is absolutely a housing shortage, in Milwaukee and across the country. There is a need for new multifamily units. The use of tax credits can help provide some leverage against high interest rates today. Those tax credits can be a valuable component to make sure that multifamily developments are built to address the housing shortage we face.
Where is new multifamily being built in the Milwaukee market?
Bills: There is quite a bit of interest in developing new apartment units in the city of Milwaukee, not just in the suburbs. There is a demand for that urban living. There is a need for new housing in the city of Milwaukee itself.
Are people still interested in living in downtown Milwaukee?
Bills: There is a draw to living in downtown Milwaukee. I don’t think that the city of Milwaukee saw the same suburban flight that cities like New York City or Los Angeles did during the pandemic. If the city did see that, it wasn’t to the same extent as larger cities experienced it. As a result, there continues to be a real interest and excitement in multifamily developments in the city itself.
The Deer District downtown is a good example. That is an exciting community gathering place where people want to be. There are other developments, though, being worked on throughout the city outside that district. These are also community areas that draw people to them. And these developments need a multifamily component.
We haven’t spoken much about retail. How is that sector doing?
Bills: Retail has performed better than people thought it would. There is a lot of interest in making sure that retail spaces in downtown Milwaukee are filled so that downtown Milwaukee doesn’t look empty. The goal is to have lively communities where people come to work, play and live.
There certainly has been a significant amount of retail activity downtown. There continues to be strong retail activity in the suburbs, too.
It’s a mix of retail, too. We are seeing plenty of stand-alone retail entering the market as well as mixed-use developments that include retail, office and hotel space.
What sets Milwaukee apart? What makes it a good place for companies to do business?
Bills: I think what is special about the state of Wisconsin in general is that our elected officials and municipalities are excited about development within their cities, villages and municipalities. They want to be true partners to help developments move forward. That is what creates jobs and places to live, work and play.
Specifically in the Milwaukee area, we have direct access to airports and major highways. We have land available for development. It’s an exciting time here. We very well-positioned for new development because of the atmosphere that we have created to promote growth.
The Iron District MKE is an example of a new multi-use development that people are excited about. It’s a bit like the Deer District, only centered around a new professional soccer stadium. People can watch a sporting event and then grab dinner and a drink. It will be another gathering place for the community.
At the same time, the Deer District isn’t done yet. It will continue to be built out. It has certainly revitalized the area in a great and tremendous way. The positive impact that these districts have had on the businesses operating within them has been impressive.
Generally, the state of Wisconsin and southeastern Wisconsin are well-positioned to continue to be strong when it comes to commercial real estate activity. We seem to have a bumper against some of the potential downfalls.