HEARTLAND SNAPSHOT, JUNE 2006

Green Bay Industrial Market

The industrial marketplace in the greater Fox River Valley/Green Bay area has seen an increase in activity during the past 12 months. This is mainly due to the fact that construction costs are rising.  Many users/buyers are looking at the cost of purchasing an existing building and retrofitting the building to their needs versus new construction.

The improvement has also been fueled by buyers and users taking advantage of the market’s favorable conditions.  In particular, there has been activity on the part of the investors/users looking to capitalize on the lower interest rates.  While interest rates are on the rise, those companies that are able to make capital expenditures are finding a lending market in which lenders are willing to go to great lengths to secure financing for high-credit borrowers.  Local investors, meanwhile, are typically looking for returns in the 10-to-13-percent range for smaller to medium companies. For institutional grade transactions for sale/leasebacks, we are currently seeing returns in the range of 8 to 9 percent.

What used to be a manufacturing/industrial base focused mainly on the paper industry, has gradually been diversifying in the past 10 years with technical-oriented companies.  While there is no replacing the high-paying manufacturing jobs, we see new emerging, highly technical manufacturing and service companies growing steadily during the next 10 years, providing new and expanded opportunities the area. Several new transactions have taken place in the area, including Miller Electric leasing 107,000 square feet in the former Party America facility in Grand Chute; Fox Converting’s purchase of 50,000 square feet in Green Bay; Zebra Technologies Corp.’s new 50,000 square foot manufacturing facility in the Greenville industrial park; and Central Acoustical Supply’s new 25,000-square-foot office/warehouse in the Northeast Appleton industrial park.

Rental rates for manufacturing space in the greater Green Bay/Fox River Valley market are currently commanding lease rates of $3 to $3.50 per square foot, triple-net.  Warehouse rates have been a little sluggish, hovering around $1.50 to $3 per square foot, triple-net.  The estimated total industrial marketplace in the greater Green Bay area currently has more than of 30 million square feet, with a vacancy rate in the 11 percent range. The industrial marketplace in the greater Fox River Valley totals approximately 31 million square feet and features a vacancy rate of slightly less than 6 percent.

The industrial sector has experienced several manufacturers announce cutbacks and closings. We look upon this as a temporary setback in the marketplace that, in the long run, will make our industrial marketplace healthier and more diverse.  Some of the recent developments occurring in the marketplace have been the decision by Kimberly Clark to close three manufacturing plants: Neenah Nonwoven Facility, Lakeview Diaper Plant and the Byrd Avenue facility in Neenah, Wisconsin.  This cutback will affect approximately 700 employees; the three manufacturing facilities represent more than 1.5 million square feet in industrial manufacturing space. This trend of large manufacturers looking to consolidate their operations into larger facilities is not new to the market.  Even though this is a large addition of new vacant space, it is not indicative of the overall health of the market.  The submarket for smaller to mid-size light industrial space remains strong. 

Industrial development in the greater Fox River Valley marketplace is taking place in many of the municipal business parks located throughout the valley.  Some of the areas seeing activity and expansion are the CTH CB corridor in Appleton, Menasha and Neenah; as well as the Appleton, Greenville, DePere and Green Bay business parks. 

Due to the size of the marketplace, our industrial market is driven more on a local basis rather than through institutional developers and buyers.  However, we have seen an increase in institutional money for large industrial manufacturing sale leaseback opportunities.  The municipal business parks throughout the Fox River Valley are being aggressive with economic packages to help lure manufacturers with job training and job tax credits where applicable.

In the future, we look at the municipal business parks to continue to be the focus of the new industrial activity.  Several corridors that we anticipate to remain strong are the Highway 41 corridor and the Interstate 43 corridor. With the recent renewal of activity in the marketplace, we foresee continued gradual improvement.

— Todd M. DeVillers is a senior vice president at Milwaukee-based The Polacheck Company/A CB Richard Ellis Company.

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