HEARTLAND SNAPSHOT, FEBRUARY 2010

Milwaukee Retail Market

At the end of 2009, the Southeastern Wisconsin retail market showed a vacancy rate of 11.6 percent, according to the CB Richard Ellis Fourth Quarter MarketView. In 2009, the market witnessed a dramatic increase in vacancy rates, compared with a 9.3 percent rate in the fourth quarter of 2008. Most of this change occurred in the first and second quarters and we are now seeing the market bottom out, as the vacancy rate continues to climb at a much less dramatic pace. Average asking rents fell from approximately $19.50 per square foot triple net at the end of 2008 to approximately $16.50 per square foot triple net at the end of 2009.

Several mid-box retailer bankruptcies, including Circuit City, Linens ‘N Things, Sportsman’s Warehouse and Steve & Barry’s led to this rapid increase in the vacancy rate. Other store closures on the part of retailers such as Blockbuster, Ethan Allen, Hollywood Video, The Home Depot, La-Z-Boy and Lowe’s Home Improvement Warehouse also played a significant role in rising vacancy rates.

One bright spot in 2009 was the activity that occurred in the grocery category. Active retailers in this category include Aldi, Piggly Wiggly, Woodman’s and Roundy’s dba Pick ‘n Save. Aldi opened stores in Brookfield, Grafton and Wauwatosa, Wisconsin. Piggly Wiggly announced plans to open additional locations by taking over three former grocery store boxes. These sites include a former Supersaver in Kenosha and two former Jewel stores on Capitol Drive in Milwaukee. Additionally, Woodman’s broke ground on a new 238,000-square-foot store in the Menomonee Falls market.

Pick ‘n Save continues to be the most active grocer in the market. In 2009 and the first quarter of 2010, new stores opened in Burlington, Franklin, Grafton, Milwaukee, Waukesha, Wauwatosa and West Bend, Wisconsin. One of these new locations opened in a former The Home Depot site at the southeast corner of 76th Street and Good Hope Road on Milwaukee’s northwest side. The existing building was renovated to accommodate a new 100,000-square-foot Super Pick ‘n Save store, which is significantly larger than the company’s typical 60,000- to 70,000-square-foot format. Plans have been announced for new stores to break ground or open in the Menomonee Falls, Mequon and West Bend markets in 2010. Many of these new stores are relocations of existing stores in the market.

With the changes that have occurred in the auto industry, the market is starting to see several former car dealership sites redeveloped. Pick ‘n Save entered the Mayfair Road corridor in Wauwatosa through the redevelopment of the former Renner Auto Dealership site. Mayfair Road has historically been a very difficult area in which to find a large site to accommodate a major retailer. Dave & Busters will open its first Wisconsin location in 2010 a few blocks north of the new Pick ‘n Save on another former auto dealership site. Both of these sites are located just south of Mayfair Mall.

Target and Walmart either opened or started construction on several new locations in 2009. The companies’ rapid expansion in recent years is expected to slow, causing new major shopping center development to be non-existent in 2010. New Target locations include Shoppes at Fox River in Waukesha and the Shoppes at Wyndham Village in Franklin. Walmart opened a new supercenter and Sam’s Club at the 110-acre Somers Market Center at the northwest corner of Highway 31 and 38th Street in the Somers (Kenosha) market. Walmart also broke ground on new stores on Moorland Road in Muskego and Highway 59 in Waukesha. Plans for a new Costco store, to be located on Highway 164 north of Capitol Drive in the Village of Pewaukee, were announced in January. This store, which is scheduled to open in the fall, will be Costco’s second location in the metro Milwaukee market and its third store in Wisconsin.

As 2010 continues, experts expect to see the market begin a recovery phase. With the lack of new shopping center construction, retailers will look more to existing space including vacant retail boxes, to accommodate expansion requirements. As retailers deal with slower sales growth, existing space has also become a more economical option to pursue.

Retailers that took advantage of existing space opportunities in 2009 include AJ Wright/ TJ Maxx, Burlington Coat Factory, CVS/pharmacy, Citi Trends, Dollar Tree, Get It Now, Gold’s Gym, Half Price Books, Mattress Firm, Petco, Piggly Wiggly and Steinhafel’s Mattress. A rare opportunity for discount retailers to expand into prime retail locations while meeting economic parameters existed last year. The Milwaukee metropolitan area will continue to see retailers pursue existing space options in 2010, which will assist in the market’s recovery.

— Peter Glaser is a first vice president in the retail properties group in CB Richard Ellis’ Milwaukee office.

©2010 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.