Southeastern Wisconsin’s industrial market absorbed nearly 1.28 million square feet in the third quarter — the fifth consecutive quarter of positive absorption — and 2.87 million square feet of absorption year-to-date. The vacancy rate registered 7.6 percent in the third quarter, down from 9.2 percent a year ago, according to Xceligent/CARW.
Leasing activity in Milwaukee and Waukesha counties has accounted for 80 percent of the 2.87 million square feet absorbed year-to-date. Kenosha and Racine counties both experienced positive absorption of 81,527 square feet and 486,832 square feet in the third quarter, respectively.
While impressive, this data is less substantial than previous quarters that we have analyzed. Traditionally, Racine and Kenosha counties compete for tenants crossing over the border from Illinois. These two counties will likely attract the next speculative or build-to-suit developments in Southeastern Wisconsin.
With leasing and sales activity continuing to be on the rise late into the third quarter, we expect these positive trends to carry over into the final quarter of 2011.
Quality industrial space is being depleted in many of the more popular submarkets south of I-94 and west of I-45. Natural tensions between quality supply and increasing demand are causing a stabilization of lease rates that we have not seen for years.
We believe this pent-up demand and dwindling supply of quality product will result in a number of build-to-suit projects over the next 12 months, and perhaps a resurgence of speculative projects.
In July, Zilber Property Group unveiled plans for its newest industrial speculative building at LakeView Corporate Park in Pleasant Prairie. The 60,256-square-foot facility, which will house either a single tenant or multi-tenants, is expected to be complete by the end of this year.
HSA Commercial Inc recently signed a tenant to a 63,838-square-foot lease at its park in Mount Pleasant, creating the potential for a new building to satisfy demand in the park later this year or next.
Since the second quarter of this year, we have observed a significant increase in the velocity of property sales and lease transactions for industrial product throughout Southeastern Wisconsin (see table).
Based on the available data and our experience in the marketplace, we anticipate a strong finish to the year in industrial property sales and leasing activity, which should carry over into the first half of 2012.
While challenges remain in the Milwaukee marketplace, the shifting supply and demand curves will have a notable impact on pricing and potential new development in the short term.
— Samuel D. Dickman is chairman of Milwaukee-based The Dickman Co. and Brian Parrish is vice president.