The tragic events of last September and the downturn in the economy have severely impacted the commercial real estate market in the Milwaukee area. Manufacturing has been hit particularly hard, so it is no surprise to see the industrial market lagging far behind the high activity and occupancy rates experienced in the 1990s. Thankfully, interest rates have been kept low, which has encouraged some to continue with their growth plans. However, we are still seeing contraction within the market as evidenced by the sublease space recently introduced.

For example, the New Berlin Industrial Park has seen its share of activity in the 1990s, where a relatively tight market kept vacancy rates well below the 5 percent average for the Milwaukee Metro area. We saw vacancy rates drop below 2 percent in 1996.

Now, of course, it is a different story. Over 11 percent of the total industrial inventory in the New Berlin Industrial Park is available and on the market for sale or lease versus the average 5 to 7 percent. The vacancy rate is 9.16 percent, driven in part by the relocation of Velvac and two large facilities occupied by GE Medical.

Sublease space continues to be introduced to the market, an indication that companies are still contracting. A lot of smaller deals in the 3,000-, 5,000- and 10,000-square-foot range have taken place recently. It's actually a phenomenon we haven't seen for awhile and is most likely due to a good number of them being start-up companies.

Companies are saying "no" to larger deals; in fact, there is more downsizing than ever before from almost everyone. The market seems to be contracting yet again, after the original contraction (at the end of last year). Marketing time for lease space has increased from 6 to 9 months to 1 year or more. Asking rates for lease space have hit a plateau. However, landlords have become more aggressive in making deals, driven in part by the competition the sublease opportunities have presented.

If you are in need of subleasing excess space or disposing of excess real estate, a careful analysis of the market is especially warranted given the sluggish nature of the market.

There are a couple of significant projects such as Pabest Farms, a development in the infrastructure stage. But generally speaking, people aren't as aggressive on specs as they have been in the past. The usual summer boom in business has simply not happened.

However, growth does exist in certain areas, such as Waukesha County. The demand is a little higher there and the area can only grow in three directions (with Lake Michigan to the east). The biggest growth has been to the west along the Interstate-94 corridor.

This particular area has seen much better growth (in general) than the rest of Milwaukee.

Marc E. Schmidt, CCIM, is vice president of Wangard Partners.


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