Daniel Jessup, President, Apex Commercial

The metropolitan Milwaukee office development market slowed to a crawl last year with less than a handful of new office developments breaking ground, according to Dan Jessup, president of Brookfield, Wisconsin-based Apex Commercial. However, four major office projects were completed in 2003. Two of these projects, the 875 Building and Cathedral Square Building, are the first two Class A office buildings built downtown since 1990.

Irgens Development Partners completed the 875 Building located at 875 E. Wisconsin Ave. This eight-story, 209,000-square-foot office building, with floorplates of approximately 27,000 square feet, is fully leased with the exception of 15,000 square feet of encumbered space. Anchor tenants include Artisan Partners, Roundy’s and Ernst & Young.

Developer Joel Lee completed the Cathedral Square Building overlooking the Cathedral Square Park. This 18-story, 220,000-square-foot mixed-use property will include a parking structure, first-floor retail space, Class A office space and condominiums. The Whyte, Hirschboeck, Dudek Law Firm is an anchor tenant.

A majority of the anchor tenants moving to these new buildings are existing downtown, Class A office users. “This movement has resulted in a trickle-down effect for the existing Class A office buildings and Class B office space,” Jessup says. “It will take 12 to 18 months to backfill the space vacated by the anchor tenants moving to the new buildings.”

The only major speculative office development currently under construction is Whitnall Summit Company’s Summit Place located in West Allis, Wisconsin. This development is a combination of a new office building and the former Allis Chalmers industrial facility, which has been redeveloped into one office complex. When completed, the project will consist of approximately 650,000 square feet of space on five floors.

There are several developers in the metropolitan Milwaukee area that have focused on office development, including Opus Corporation, Irgens Development Partners, Told Development Company, Capstone Quadrangle Development Company, Weas Development Company, Towne Investments and Liberty Property Trust.

The current rental rates in the city are $12 to $16 net with operating expenses ranging between $8 and $10 per square foot. The current vacancy rate for Class A office space is 12.9 percent east of the Milwaukee River and 22.9 percent west of the river.

At this time, there are no major office developments on the horizon for this year. “We will see very little, if any, speculative office space hit the market,” Jessup says. “Any new office developments will include an anchor tenant occupying more than 50 percent of the building.”

This trend is the direct result of a sluggish economy, which has resulted in higher unemployment during the past 24 months. Existing tenants are downsizing, and new deal velocity is stagnant. The overall market will take a minimum of 1 year to absorb enough existing vacant space to encourage developers back to the table. “I am confident the third and fourth quarters of 2004 will experience solid velocity,” Jessup says.

There are a few developments in the area that should sustain growth in the future. Cleveland-based The Ferchill Group is redeveloping the 130-year-old Pabst Brewing Company brewery complex in downtown Milwaukee. Pabst City, a $300 million mixed-use project will consist of four phases. The first phase is projected to open in 2005, and the entire project is expected to be complete by the end of 2007. The development will include 480,000 square feet of space dedicated to entertainment, retail and restaurants; 225,000 square feet of office space; and 648 residential lofts. The House of Blues has been announced as an anchor tenant.

Another major project, the removal of the Park East Freeway, will open up 26 acres for development on the north side of downtown Milwaukee. “It is expected that the redevelopment of this corridor will yield more than $250 million in new development,” Jessup says. “This redevelopment, combined with the Pabst City redevelopment, which is located on the northern edge of the Park East Corridor, will invigorate this part of town. The two projects should have a major impact on downtown Milwaukee for many years to come.”

The freeway demolition and the subsequent reconstruction of connecting streets, is expected to be complete by this spring.


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