HEARTLAND SNAPSHOT, SEPTEMBER 2008

Milwaukee Retail Market

Despite a changing national economy, the Milwaukee retail market remained steady in the first half of 2008. According to the CB Richard Ellis Second Quarter Market View Report, overall shopping center vacancy rates for southeastern Wisconsin are at 9 percent. This is slightly lower than vacancy rates reported for previous periods.

Slightly lower vacancy rates can be attributed to the market catching up with itself. As pre-leasing requirements become more stringent, there is less speculative development occurring in the market. The development that is occurring is mostly pre-leased or has strong anchor tenants that will attract additional leasing while the project is under construction.

We are also seeing retailers look to existing shopping centers to expand their presence in the market. Burlington Coat Factory’s recent activity illustrates this trend, and has completed a lease for an 80,000-square-foot former department store space at Regency Mall in Racine, Wisconsin and a 70,000-square-foot, second generation space in West Allis Towne Center.

Several significant shopping center developments broke ground in southeastern Wisconsin at the end of 2007 and in the first half of 2008, including:

• Somers Market Center:  a 110-acre Wal-Mart Supercenter and Sam’s Club- anchored development located on Highway 31 and Highway S in the Kenosha submarket.

• Prairie Ridge: a Target, JC Penney, Dick’s Sporting Goods and PetsMart-anchored development along Highway 50 in Pleasant Prairie.

• Shoppes at Fox River: a center anchored by Target and Pick ‘n Save on the site of the former Fleming distribution center on Sunset Drive in Waukesha.

• Shoppes at Wyndham Village: a Target and Sendik’s-anchored development along Highway 100 in Franklin.

• Grafton Commons: a Costco-anchored development at Interstate 43 and Highway 60 in Grafton that opened at the end of 2007.  Best Buy, Dick’s Sporting Good and PetsMart will join Costco at this site later this year. This will be the first Dick’s Sporting Goods in the metro Milwaukee market.

In addition to this activity, Developers Diversified Realty is moving forward with plans to develop the Pabst Farms Centre at the northeast quadrant of Interstate 94 and Highway 67 in Oconomowoc, Wisconsin. Phase I of this development will be an approximately 1 million-square-foot open-air center.

Wal-Mart continues to move forward with plans to open additional Supercenters in the Milwaukee area. In addition to the Somers location, Wal-Mart announced plans to open supercenters in the Cudahy and Muskego, Wisconsin, submarkets. Wal-Mart recently started construction to expand its existing Southgate store on South 27th Street in Milwaukee into a Supercenter. Shopko’s will open its first new prototype store in the market later this year. This 80,000-square-foot store will be located in the Sussex, Wisconsin, submarket, adjacent to an existing Kohl’s.

Grocery and pharmacy retailers continue to be very active. Pick ‘n Save, Sendik’s and Woodman’s have opened, or are in the process of opening, new stores throughout greater Milwaukee. Woodman’s Market opened a 240,000-square-foot store on Howell Avenue in Oak Creek, Wisconsin, this past April, marking the retailers entrance into metro Milwaukee. In addition to a new store in Waukesha, Pick ‘n Save announced plans to open on the former Renner Automotive site on Mayfair Road in Wauwatosa, which is located just south of Mayfair Mall. Several Sendik’s stores opened in the market this year, including new locations in Franklin, Greenfield and Germantown, Wisconsin.

CVS/pharmacy continues to expand its presence in the southeastern Wisconsin market after taking over the former Osco Drugstores. New CVS stores opened at 76th Street and Capitol Drive, and at South 27th Street and Howard Avenue. Walgreens continues to fill in the market and reposition older inline stores to new freestanding locations.

Smaller scale retail development will continue in strong retail areas where demand persists. The new One Mayfair Place retail development that opened at the northwest corner of Mayfair Road and Center Street, across from Mayfair Mall, is an example. Initial tenants in this 47,000-square-foot, three-building development include Chipotle, Starbucks Coffee, Fed Ex Kinko’s, Verizon Wireless, Columbia St. Marys, WG&R Sleep Center, Omaha Steaks, and Flat Top Grill. 

Mid-sized retailers were also active in the first half of the year. Two new Office Max stores are under construction in Franklin and West Milwaukee, and another new store has opened at Burleigh Square in Wauwatosa. Best Buy and Dick’s Sporting Goods are opening stores in the Grafton and Kenosha submarkets.

The urban retail market continues to evolve around Milwaukee’s downtown, east side and Third Ward areas. Anthropologie opened last summer in the Third Ward. Urban Outfitters and American Apparel are now open on the east side along Prospect Avenue near Whole Foods.

Other active retailers and restaurants in the market include Dunkin’ Donuts, Five Guys Burgers & Fries, Sonic, Maurices, US Cellular, AT&T, Verizon, Cricket Communications, Buffalo Wild Wings, Gamestop, Massage Envy, Omaha Steaks, GNC, ULTA, Snap Fitness, Anytime Fitness and Get It Now.

As 2008 continues, look for two trends that are emerging in Milwaukee. First, less speculative development will lead to lower vacancy rates over time as retailers are forced to look at existing centers for expansion opportunities. And, active retailers will follow discount department stores such as Target and Wal-Mart into several of the major developments currently under construction.

—Peter Glaser is first vice president in the brokerage services retail properties group in the Milwaukee office of CB Richard Ellis

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