Report: Sole office construction in Milwaukee likely dead for years

Multi-tenant buildings meant solely for office tenants will likely see stagnant construction in Milwaukee for the next few decades, according to commercial real estate experts.

There was a 23.5% vacancy in office buildings in the Milwaukee market in the second quarter of 2024, a recent report from JLL showed. Year-over-year growth was essentially flat as office vacancy last year rated 23.6%. The national average for office vacancies is 20.5%, according to JLL research.

In the last quarter, there was nearly 460,000 square feet of negative absorption and no new office space under construction.

Class A asking rates and overall direct asking rent in Milwaukee are $26.22 and $22.12 per square foot respectively, the report showed.

The negative absorption was concentrated in two large space givebacks, the report showed. GE Healthcare left nearly 400,000 square feet at 9900 W. Innovation Drive and ABB left nearly 90,000 square feet at 1425 Discovery Parkway, both in the Wauwatosa submarket.

That pushed the submarket’s vacancy above 35%, nearly 20 points higher than in the first quarter of 2024, JLL officials said. It will likely take several years to backfill the space as the submarket had fewer than 100,000 square feet of growth in the last two years combined, they added. Despite the negative growth in Wauwatosa, JLL officials said the central business district has been relatively stable.

Lesser office buildings might be repurposed, expert says

While trends such as working from home and the recent pandemic are drivers for empty offices, real estate experts predict obsolete office buildings will eventually be repurposed for housing, education, health care or other purposes.

“There are a number of buildings in Milwaukee that are lower class (office spaces),” said David Pudlosky, the managing director in brokerage at JLL. “I don’t think for the foreseeable future they will be sustainable office buildings. And those buildings will have to be repurposed … when they are no longer office buildings, our total inventory will reduce which will have an impact on our vacancy rating,” he added.

However, as the “total universe” of office buildings get smaller, other Class A and higher Class B buildings will start to gain tenancy, Pudlosky noted. Class B buildings or lower could start to recede as time moves forward.

It’s unlikely there will be new pure multi-tenant office building construction in the next several decades, despite Milwaukee’s downtown seeing reinvigorated construction around five years ago, Pudlosky said. But there is a chance for more mixed-use buildings with apartments or hotel rooms with a couple floors of office, he added.

“I don’t think we’re going to see another 40-story, 30,000-square-foot floorplate multi-tenant office building in Milwaukee for a very long time,” Pudlosky noted.

Tenants continue pursuit of high quality Class A buildings

The Milwaukee market absorbed over 120,000 square feet since the start of 2024, as Veolia plans to move into the ASQ Center, according to the report. In February, Enerpac Tool Group announced it will move into a 56,000-square-foot space in the ASQ Center and rename it the Enerpac Center at the end of this year.

The Hempel Group moved into the final condo at the ASQ Center this quarter, the report showed. The group acquired 100,000 square feet and now the building is nearly 91% occupied. There has been more than 85,000 square feet of leasing activity over the past 12 months.

The report predicts the demand for Class A space to persist as tenants look for quality officials through the rest of 2024. Flexible workspaces, collaborative areas, wellness facilities, advanced technology infrastructure and other features will be in demand for tenants. Those desires will likely push landlords to invest and update their spaces, the report added.

“This trend is driven by tenants’ desire for modern, well-designed spaces that offer a range of amenities to enhance their productivity and overall experience,” officials wrote in the report. “In response to this demand, landlords will likely face pressure to invest in their buildings and keep them up to date with modern tenant amenities.”