Milwaukee Market Displays Strong Fundamentals Despite Retailer Struggles
Like many other Midwestern markets, Milwaukee is experiencing a mixed bag in retail. While headlines have been dominated primarily by closures, there has also been an abundance of new activity in the market.
While it’s taken its hits, the retail market has fought back and retail vacancy has actually decreased slightly to 4.4 percent in the first quarter, according to CoStar Group. Rents are edging up and Class A space is difficult to find. The inventory of Class B and C space is more robust. Due to low demand, landlords are not enjoying much negotiating leverage.
On the surface, multiple big box closings that have occurred in metro Milwaukee this year paint a gloomy picture of the retail marketplace. Grocery, wholesale, apparel, toys, restaurants and other categories of retailers have closed fairly rapidly. These include Pick ‘n Save (Kroger) in Cudahy, Sendik’s in West Milwaukee, Sam’s Club in West Allis, Toys ‘R’ Us and Babies ‘R’ Us in Brookfield and iPic Theater at Bayshore Town Center in Glendale.
Another ominous cloud is the Bon-Ton bankruptcy and the closure of seven area Boston Store locations, including the company’s clearance center and furniture gallery in metro Milwaukee. Compound that with Sears closures and you’d think Milwaukee landlords would be panicking. The good news is that many are not.
The real scoop
The silver lining regarding the Bon-Ton locations is that most of these sites are regional enclosed malls and the prospects of filling the space to new tenant(s) are relatively high because of the prominent locations.
In addition to Bon-Ton closures, metro Milwaukee is suffering the closure of multiple Sears stores. In a demonstration of resiliency, the Simon-owned Southridge Mall in Greenfield and the CBL-owned Brookfield Square Mall in Brookfield are already slated to be backfilled by multiple tenants.
Dick’s Sporting Goods and Round 1, a Japanese entertainment concept new to Wisconsin, will take 66,000 square feet and 45,000 square feet respectively at Southridge. Round 1 offers bowling, billiards, arcade games, karaoke, darts and ping pong.
WhirlyBall, also a new-to-market entertainment concept, and BistroPlex by Marcus Theatres, the second in a new line of hybrid cinema/restaurant concepts, will be replacing Sears at Brookfield Square Mall. At WhirlyBall, customers play a unique game from high performance bumper cars with scoops and wiffle balls in addition to laser tag, video games and pool.
IKEA, at the northwest corner of I-94 and Drexel Avenue in Oak Creek, has dominated the buzz as the area’s most anticipated new retail space with a recent opening in May. A parking lot of 1,100 stalls quickly reached capacity and closed as shoppers from hours away made their way to the most anticipated metro Milwaukee store opening since 2015, when Nordstrom opened a 140,000-square-foot store in Wauwatosa’s Mayfair Mall.
Long rumored to be in talks for The Corridor, developed by Irgens Partners, Lifetime Fitness will soon be breaking ground on its first location in Wisconsin on Bluemound Road in Brookfield. Totaling approximately 125,000 square feet, Lifetime Fitness will be one of the anchors of this mixed-use development that includes Dick’s Sporting Goods, Portillos, Associated Bank, and two hotels in addition to a substantial office component.
While it’s not nearly as large as IKEA or Lifetime Fitness, Shake Shake has also created buzz by opening at the northeast corner of Water and Buffalo streets in the Historic Third Ward of Milwaukee. A small restaurant opening doesn’t usually generate the notoriety that Shake Shack has, but when Milwaukee is one of only 85 locations globally to have a Shake Shack restaurant, it’s another credibility boost to the market.
No signs of slowing down
With new construction deliveries at 290,000 square feet for a building like IKEA alone, it’s possible to understand why, despite all of the big box vacancy hitting the market, Milwaukee is experiencing strong positive net absorption of 425,000 square feet. Expect this trend to continue as retailers like Fleet Farm work to open a 220,000-square-foot store in Oconomowoc, and Hobby Lobby moves forward in 50,000 square feet at the former Kmart in West Allis.
After a post-recession construction vacuum, there is a lot of new product hitting the market. The majority of this product is fully or mostly preleased upon commencement of construction.
Previously the culprit for vacancy hitting the market, Gander Outdoors has plans to re-open in several former Gander Mountain buildings, including 27th Street north of Rawson Avenue in Franklin and the former Babies ‘R’ Us premises on Bluemound Road in Brookfield.
Changing with the times
Milwaukee is experiencing a retail evolution similar to what is occurring across the country. Menomonee Falls-based Kohl’s is on the leading edge of adapting to the changing marketplace and consumer demands. By partnering with Amazon to construct a store within a store, Kohl’s has already increased store traffic and sales. Additionally Kohl’s is partnering with Aldi, with its first joint location on St. Paul Avenue in Waukesha. The goal is to reduce footprints of oversized stores (+/- 25,000 square feet in this instance), as well as to add another line of products to draw customers to the location.
As shopping trends and consumer preferences continue to change, look for innovative brick-and-mortar retailers to reinvent themselves and the way they connect with customers. Those who do not will eventually find themselves filing for bankruptcy and exiting the landscape altogether. For retailers that cannot survive, look for new concepts to backfill well-located properties and keep Milwaukee market fundamentals strong for the foreseeable future.
— By Ross Koepsel, Principal and Retail Broker, Founders 3 Real Estate Services Inc. This article originally appeared in the July 2018 issue of Heartland Real Estate Business magazine.