HEARTLAND SNAPSHOT, JANUARY 2006

Milwaukee Office Market

In downtown Milwaukee, Class A office space works well, and as a result, Class A office tenants are looking for new developments. The majority of activity is taking place in the downtown area due to the availability of new rentals. “The influx of downtown Milwaukee residents has subsequently led to an increased interest in additional office development and relocation,” says Jack Jacobson, a principal with NAI MLG Commercial.

Recently, Best Buy purchased three office buildings on Mayfair Road in western Milwaukee. Best Buy wanted to be across from Mayfair Mall, and the store's current location lacked adequate access and parking. As a result of the purchase, 40 office tenants had to relocate, resulting the in absorption of approximately 60,000 square feet of Class B space. “The purchase by Best Buy changed the Mayfair Road vacancy rate from almost 20 percent to below 5 percent,” Jacobson says. Milwaukee's average suburban vacancy rate stands at 15 percent, with downtown Class A office vacancy at 7 percent.

Transwestern and HSA Commercial have purchased office properties in the area. The Metavante Corporation, which is headquartered in Milwaukee, continues to grow and utilize more office space. Activity is primarily being spurred by relocations, not new businesses entering the market. “Milwaukee's history is one of growth from within,” Jacobson says. “We're very entrepreneurial, and local business leaders and entrepreneurs are very committed to staying in the Milwaukee area.” Jacobson also acknowledges that “as Milwaukeeans, we have not done a good job of selling this area. It is almost as if we want to keep it a secret.”

A major lease transaction in the area is Kolb & Company's lease of 31,000 square feet of office space in the Gateway Building in Brookfield, Wisconsin, a western Milwaukee suburb. Other transactions include GE Medical leasing 500,000 square feet in Milwaukee County Research Park on Innovation Drive in Wauwatosa, Wisconsin, and Price Waterhouse Coopers' lease of 22,000 square feet at 100 East Wisconsin Avenue.

Downtown Class A rental rates range from $18 to $22 per square foot, triple-net, and $10 per square foot with taxes and operating expenses. Suburban rates range from $13 to $14 per square foot, triple-net, and $8 per square foot with taxes and operating expenses.

According to Jacobson, the Mayfair Road area in Wauwatosa will continue to develop, as well as the 175-acre Milwaukee County Research Park located between U.S. Highway 45, Wisconsin Avenue and Highway 100 in Wauwatosa. Within the research park, Irgens Development Partners is considering an addition to 10000 Innovation Parkway because of the demand for tenants in the 20,000-square-foot or less range.

“The Mayfair Road office market has always been a bellwether for the overall health of the suburban office market,” Jacobson says. Mayfair Road is the geographic center of the Milwaukee metropolitan area, so demand from tenants wanting to locate there has always been high. The successes of Research Park, Honey Creek Corporate Center and Summit Place all prove the desirability of the area in and around Mayfair. “If those markets have rising vacancy rates, watch out,” Jacobson says.

As for the Milwaukee office market in 2006?   “A rise in interest rates will be good for increasing occupancy rates but may be bad for owners with short-term financing,” Jacobson says.

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