Manufacturing, beer and the Green Bay Packers are typically the three things that come to mind when one thinks of Wisconsin. Although we will always love beer and our Green Bay Packers, the real estate landscape is changing.
During the past decade — and even more so over the past few years — Milwaukee has begun its transformation into a hip and vibrant city and is making its mark in progressive green technologies, water research and startups.
As Steve Palec, managing principal of Cresa Milwaukee, pointed out in his May 2012 article for Heartland Real Estate Business, for the first time since 2001 we are finally going to see a new office development and a change in our skyline.
With the exception of the world-renowned Calatrava Art Museum and Pier Wisconsin in 2001 and 2006, respectively, Milwaukee’s lakefront has remained relatively unchanged for decades. The recession is only partly to blame. A 1915 deal made by the city of Milwaukee divided the lakeshore into land reserved for public use and land eligible for private development. Although the city entered into this agreement for several reasons, it was partially to ensure that all, not just the elite, could utilize the shores of Lake Michigan.
Infrastructure Overhaul
In March 2013, the city announced plans for the Lakefront Gateway Project, which, at a cost of $34 million, will open up land for new development, move freeway ramps for easier access, and better connect downtown to the Third Ward, an artsy, vibrant live-work-play neighborhood just south of downtown.
The Wisconsin Department of Transportation and the City of Milwaukee currently have a memorandum of understanding that allows for design of the Lakefront Gateway Project to occur so that construction can begin immediately after the completion of the Hoan Bridge Project, another project that is currently in the works on a bridge that connects downtown to the southern suburbs. Construction is anticipated to begin in the fall of 2015 and continue until summer 2016.
Finally, after years of development drought, there are three major projects proposed near the lakefront: The Couture, a 44-story hotel and apartment high-rise; 833 East, an 18-story office building; and Northwestern Mutual’s new 32-story, 1.1 million square foot, $450 million office tower.
While the Couture is still in the due diligence stages, partially due to local environmental organizations challenging whether the site is on private or public land, the other projects are much closer to the finish line.
The 833 East office development, which will measure 358,000 square feet, has achieved 42 percent preleasing. Tenants will include law firm Godfrey & Kahn; real estate brokerage firm Colliers/Wisconsin; Irgens, which is the developer of the project; plus two currently undisclosed tenants. Irgens was expected to close on the land in January. The groundbreaking is scheduled for this spring with an estimated delivery date of fourth-quarter 2015.
Work has already begun on the Northwestern Mutual tower, which is being built on the site of an existing building for the giant insurer. Demolition of the existing building commenced in December 2013. The new complex will preserve 1,100 downtown Milwaukee jobs while creating 1,900 additional jobs at the downtown campus. The project has an estimated completion date of 2017.
Retail Expansion
Office isn’t the only property type experiencing growth. Due to Milwaukee’s proximity to Chicago, it is seen as a natural growth market for major retailers that are looking to expand their footprint. National retailers such as The Container Store, Meijer Inc., Nordstrom, Nordstrom Rack, Saks OFF 5th, and Von Maur have all committed to various projects in the metro Milwaukee area and have store openings slated for this year and 2015.
The Mayfair area, in particular, has experienced the most significant retail growth due to its easy access to both the northern and western suburbs, as well as its proximity to the Milwaukee Country Research Park, the Milwaukee Regional Medical Center (MRMC), and world headquarters for Briggs-Stratton and Harley Davidson.
The Milwaukee County Research Park is home to United Healthcare, GE Healthcare and more than 115 other businesses, 70 of which are high-tech companies, while the MRMC is a consortium of six health care institutions and includes a nationally recognized Children’s Hospital as well as Wisconsin Level I Adult and Pediatric Trauma Center.
In addition, the success of Mayfair Mall, which is the largest mixed-use shopping center in the state, positions this location for future growth. Nordstrom and The Container Store have both announced plans to open their first Wisconsin location in the mall, with openings scheduled for 2015.
Likewise, the construction of The Mayfair Collection, located one-half mile from Mayfair Mall, has attracted retailers such as Nordstrom Rack and Saks OFF 5th, both of which will be opening their first Wisconsin locations in 2014.
Public Sector Does its Part
While much of this development is driven by the private sector, there is certainly a public commitment to growth that is evident by major road construction projects underway throughout the metro area.
While roadwork can be a headache for commuters to navigate in the short run, the goal of our roadways is to accommodate more traffic and make commuting around the city easier in the long run.
Meanwhile, Amazon also recently announced plans to build two distribution facilities in Kenosha, located about 40 miles south of downtown Milwaukee, with a total of about 1.5 million square feet at a cost of about $260 million. The facilities are expected to bring 1,100 jobs by early 2015.
The Amazon distribution facilities also are expected to generate roughly $30 million in revenue for the state of Wisconsin, as residents will now need to pay sales tax on Amazon.com purchases.
The State of Wisconsin has agreed to provide up to $7 million in tax credits to support Amazon’s development goals. The tax credit award is contingent on Amazon hitting benchmarks for job creation and capital spending on the project.
There are a variety of factors prompting all this change. It’s partially due to the lack of activity we experienced during the past decade. There has not been a new office tower in downtown Milwaukee since two successful projects in 2001: 875 East Wisconsin and Cathedral Place, which were fully leased about the time of their completion.
The office vacancy rate in the CBD continues to gradually decline, falling from 21.4 percent in the third quarter of 2012 to 20.3 percent in the third quarter of 2013.
Class A properties posted 18,306 square feet of absorption for the third quarter of 2013 and 100,433 square feet during the past year. The result is that the vacancy rate for Class A properties has continued to decline to approximately 9 percent as of the third quarter of 2013, according to CoStar Group.
Other factors that contribute to the uptick in activity are an increased lending appetite, plus a change in demographics as more millennials enter the workforce.
These young people are looking for a job that will not only pay them well, but also provide a work-life balance, offer cool space and be located in a vibrant area near shops and restaurants.
The days of Wisconsin being solely defined by manufacturing, beer and the Green Bay Packers are long gone. While Milwaukee will always embrace its historic charm, the roads are being paved for a city that is anything but antiquated.
— By Regina Levchets, CCIM, Advisor, Cresa Milwaukee. This article first appeared in the February 2014 issue of Heartland Real Estate Business magazine.