By Matt Hunter, Hunter Real Estate
Over the past few years, we have seen a noticeable trend in office tenants relocating to new office buildings, particularly in downtown Milwaukee. Notable companies such as Baker Tilly (~40,000 square feet), Old National Bank (~20,000 square feet), CBRE (~15,000 square feet) and Silvercrest Asset Management (~11,000 square feet) have all moved into new office buildings, which are classified as being constructed within the past five years. While these relocations highlight a shift in tenant preferences toward newer buildings, most leasing activity has been observed in recently renovated office buildings.
One prime example of this is Baird, which expanded and renewed over 450,000 square feet at 777 E. Wisconsin Ave., reinforcing the demand for renovated office buildings. Other significant leasing transactions include Fiserv, which leased ~160,000 square feet at HUB640; Enerpac’s ~50,000-square-foot lease and Veolia’s ~30,000-square-foot lease at 648 N. Plankinton; Marcus Corp.’s ~50,000-square-foot lease at The Associated Bank River Center; and Allspring Global Investments leasing ~40,000 square feet at 417 E. Chicago St. These transactions further demonstrate the attractiveness of renovated spaces for businesses looking to enhance their operations.
This trend reflects a broader “flight to quality” in the office market. Tenants are prioritizing spaces that offer modern amenities, up-to-date infrastructure and appealing environments for employees. However, this shift toward quality is causing the supply of premium office spaces to diminish rapidly. With limited new construction and recently renovated office buildings available, Milwaukee’s office market is beginning to feel the pressure.
One of the major obstacles to building new office space is the rising cost of construction. New office buildings are projected to cost almost 50 percent more than existing Class A office buildings. Consequently, office rents for these new buildings are expected to be around 50 percent higher than rents for existing Class A properties. Currently, Class A office rates in downtown Milwaukee are trending between $21 and $24 per square foot (NNN), while newly proposed Class A office rates are estimated to range between $32 and $36 per square foot (NNN).
As these new buildings are constructed and leased, office lease rates across the city are likely to increase, which could make it easier for landlords to secure lender approval for pending office renovations. This rising market will likely encourage landlords to invest in major renovations, particularly in common area amenities, to attract and retain tenants. This presents a unique opportunity for existing office tenants to lock in rates at below-market levels before future rent increases take effect.
Today, only approximately 10 properties in downtown Milwaukee can accommodate more than ~50,000 square feet of contiguous office space. These include The Huron Building, 875 E. Wisconsin Ave., Manpower headquarters, 330 Kilbourn, Gas Light Building, 732 N. Jackson, R1VER (210 W. Becher St.), 611 E. Wisconsin Ave., Chase Tower and CityCenter, located at 731-735 N. Water St.
Most tenants seeking ~50,000 square feet or more of office space prefer either new or recently renovated spaces. In addition to updated interiors, tenants are prioritizing amenities such as free or discounted parking, upgraded conference rooms, tenant lounges and fitness centers. Prominent signage and onsite dining options are also valuable features, along with rooftop decks and scenic views of Milwaukee.
For office landlords, the challenge lies in differentiating their properties and offering compelling reasons for tenants to choose their building. A great example of how a building can stand out is the R1VER building located at 210 W. Becher St. in the Harbor District, just south of downtown Milwaukee. Completed in early 2021, R1VER is a ~200,000-square-foot Class A office building that currently has ~100,000 square feet of contiguous office space available. This currently represents the largest amount of contiguous Class A office space available in Milwaukee.
The building offers excellent freeway accessibility, exclusive top-of-building signage and branding opportunities, free parking (including visitor parking) and even a free boat slip. It also provides panoramic views of both Lake Michigan and the Kinnickinnic River and is home to two dining options: The Bridgewater and Casera Café & Bakery, with many other popular restaurants nearby.
R1VER’s combination of modern amenities, strategic location and ample space make it an appealing choice for large office tenants seeking high-quality office environments. Its future success, just like the other buildings with larger contiguous office space, is dependent upon ownership thinking creatively, and offering a comprehensive experience that meets the evolving needs of today’s businesses.
While there is a clear flight to quality in Milwaukee’s office market, the limited supply of new and recently renovated spaces means competition for these properties is fierce. As construction costs continue to rise and drive up lease rates for new buildings, existing office buildings will need to undergo significant renovations to remain competitive. This presents an opportunity for tenants to secure favorable lease terms now, before market conditions shift further. As the office landscape in Milwaukee continues to evolve, both landlords and tenants will need to adapt to the growing demand for modern, amenity-rich office spaces.
Matt Hunter is founder and CEO of Hunter Real Estate. This article originally appeared in the November 2024 issue of Heartland Real Estate Business magazine.