The prospect of new office construction without new tenants in downtown Milwaukee is pressuring developers sitting on vacant space.
Sheldon Oppermann, vice president of Compass Properties LLC, Madison, is trying to fill 100,000 square feet of empty office space in the building at 735 N. Water St.
If new offices are built in downtown Milwaukee and tenants that already rent downtown fill the new space, it will generate more vacancies downtown, he said.
Oppermann said he welcomes the competition that comes with more office buildings, but simply increasing the number of vacant offices only will drive down property values for everyone.
“As somebody whose job it is to maintain existing office space,” he said, “my own opinion is: Unless you are bringing in some new demand, it hurts the existing property owners.”
To generate demand for Compass’ office space, Oppermann is nearing a deal to land Gold’s Gym, which does not have a downtown location, to fill five empty floors of a building Compass owns at 731 N. Water St., next to the 735 N. Water St. property.
The gym, Oppermann said, will offer a selling point for the vacant space at 735.
Compass this week is requesting city approval for up to $13 million in bonds that would let the company borrow money at a low interest rate to renovate the building for Gold’s Gym.
Towne Investments, Milwaukee, is trying to fill vacant office space at 633 W. Wisconsin Ave. and build new offices in the former Pabst Brewery, said Vice President Thomas Bernacchi. The discussion over whether new space should be built without new tenants has been going on in Milwaukee for a long time, said Bernacchi, chairman of the business improvement district that covers downtown Milwaukee.
He said any project that creates more vacancies in the downtown market will lower rents and make business more difficult for companies that own that space, but a new project could help overall downtown by showing signs of life in the real estate market.
“If a new building goes up downtown,” Bernacchi said, “it’s going to be good for downtown.”
He said even though there are discussions of new downtown office buildings, and some downtown tenants are looking for new space, the financial market will make it very difficult to build anything new within the next 18 to 24 months.
Alderman Robert Bauman, whose district includes downtown, said he does not support the city giving financial incentives to projects that don’t bring new employers to Milwaukee or prevent companies from leaving.
“If it’s just going to add to the quantity of vacant space in downtown Milwaukee,” he said, “then it’s really not in the public’s interest to do that.”
Oppermann said he has no prospective tenants for the office building at 735 N. Water St., but is anticipating Gold’s Gym will generate some secondary office interest. He implored his counterparts in the development industry to hold off on building downtown unless they can bring some new companies into the market.
“I challenge the city,” he said. “I challenge the tenants to consider the most responsible thing we can do is to fill the buildings we have.”