Milwaukee ended 2011 with its sixth consecutive quarter of positive net absorption and more than 3 million square feet of absorption for the year. Xceligent Inc. reported that the Milwaukee industrial market ended 2011 with a vacancy rate of 7.6 percent, down from 8.6 percent at the end of 2010. The national industrial vacancy rate by comparison ended 2011 at 9.9 percent, according to CoStar Group.
Hungry for space
Of the 67 national industrial markets tracked by Cassidy Turley, 59 recorded positive demand for warehouse space. Milwaukee was among the top 10 performers along with Dallas, Indianapolis, Atlanta, Houston and Chicago, the latter of which only surpassed Milwaukee by 200,000 square feet in 2011.
Milwaukee and Southeast Wisconsin continue to attract food industry manufacturers, distributors and packagers. Most recently, Seda International Packaging Co., an Italian firm, opened its North American headquarters in Pleasant Prairie.
It joined other food retailers like Gordon Food Services and Affiliated Foods Midwest, which have opened distribution centers in the last 2 years.
ALDI and Roundy’s Foods also both have distribution centers greater than 1 million square feet in Southeast Wisconsin. Janesville, Wisconsin also attracted Melster Candy, which relocated its manufacturing operations to a 100,000-square-foot plant, and Kettle Foods, which added a 100,000-square-foot distribution center. Meanwhile, John Deere opened a new 237,000-square-foot distribution center.
Active foreign trade zone
In August 2011, the U.S. Department of Commerce Foreign-Trade Zones (FTZ) Board approved the Port of Milwaukee for a program known as Alternative Site Framework, which allows businesses in counties within 60 miles or a 90-minute drive time from the port to receive expedited FTZ Board approval.
This specially zoned area now includes Milwaukee, Racine and Kenosha counties and will add Ozaukee, Waukesha and Washington counties. This should help anyone importing and exporting items from Milwaukee out of the country. Certain types of merchandise can be imported into a FTZ without going through formal customs entry procedures or paying import duties. Bentley World Packaging, which leased an additional 360,000 square feet, is taking advantage of the FTZ.
According to Xceligent, sales of industrial properties increased significantly in 2011. The number of buildings sold increased by roughly 60 percent from 2010 to 2011, and the sale price per square foot rose by 10 percent. There were more than 200 industrial properties sold, totaling in excess of 13 million square feet in 2011, according to Xceligent.
The largest deal was the $30 million sale of the 490,000-square-foot distribution center for BuySeasons Inc. in New Berlin, Wisconsin. BuySeasons is a large distributor of Halloween costumes and party supplies for adults and kids.
Milwaukee is continuing to see growing demand for industrial high-cube warehouse/distribution space as well as more requests for proposals. One of these RFPs is from another food user seeking more than 700,000 square feet, and another is Briggs & Stratton looking for a 150,000- to 250,000-square-foot distribution center that can be expanded.
Given this higher demand, lower vacancy and still record-low yields on other investments, cap rates for investment-grade assets will start to come down.
— Kenneth Braden, CCIM, SIOR, is senior vice president with Cassidy Turley Barry in Milwaukee.