Offices seek high class space, chances for renovation

Listen to this article

Milwaukee started the second half of the year with positive office absorption, and different classes struggled and thrived in a recent report.

The Milwaukee office market started the third quarter with 19,838 square feet of positive absorption, and rent grew a healthy 0.7% quarter-over-quarter, according to a report from Jones Lang LaSalle. While the city gained 52,000 square feet of Class A office space, those gains were partly offset by losses in Class B and C properties, the report showed.

Businesses moved closer to central business district with 30,000 square feet of positive absorption, and Milwaukee bucked the trend of U.S. cities where companies moved further out, JLL officials said. Companies were also leaving behind larger spaces for smaller buildings with more updated workspaces.

In the third quarter, human resource firm Cielo relocated from 10100 W. Innovation Dr. in Wauwatosa from 200 S. Executive Dr. in Brookfield, moving to an upgraded space and shrinking their office footprint by roughly 28%, the report showed. Waterstone Mortgage left 55,000 square space of Class B space in Pewaukee and relocated to 12,000 square feet of Class A space in Brookfield. Steel Solutions moved from South Milwaukee to a new tech center in West Allis, occupying 38,000 square feet, according to the report.

There was a total of 239,940 square feet of leasing activity in the third quarter, and roughly 47% of activity was in the central business district, the report showed. Only 26% of leases signed in the third quarter were renewals, as tenants are likely to look at upgrading the quality of their space and adjust their office footprints, JLL officials said.

Overall, the Milwaukee office market faced a vacancy rate of 23.9% in the third quarter, the report showed. In this quarter, overall vacancy was up to 22.2% nationally, according to separate JLL research.

To date, there was a loss of 351,279 square feet in the Milwaukee office market, the report showed. The asking rent for Class A spaces and overall spaces was $26.08 and $22.27 per square foot respectively. The construction and preleasing of new offices remained stagnant.

 Loading ...

No new need for construction as lots of leasable space is available

There’s no new construction on the horizon in Milwaukee, but if there was, it will have to be kicked off by a large tenant who wants a new building, said Patrick Savoie, the senior vice president of brokerage at JLL in Milwaukee. Floor space is expensive, and many groups are priced out of building new space, leaving the slowdown of new construction to linger for the next year or two, he added.

There have only been a few Class A multitenant buildings constructed in Milwaukee over the last 20 years, with the BMO Tower completed in 2020 as an example, Savoie said. The tower has a considerable amount of space and attracted tenants who might have otherwise sought new construction, he added.

Similarly, the Associated Bank River Center renovated its lobby and upgraded its amenities, which made it attractive to larger tenants, Savoie added. “There’s been options for tenants to lease space in the market that doesn’t have them needing to do massive new construction,” he noted.

There have been blips on the radar for new potential offices; Neutral’s response to the city’s request for proposals with nearly 200,000 square feet of office space and the Milwaukee Bucks’ interest in a new office in the Deer District. Both projects have yet to gain final approval and break ground.

“In the next two to three years, there’s always a larger tenant with lease expirations coming on the horizon,” Savoie said. “They should be evaluating new construction opportunities and hopefully the numbers make sense of both sides where we get to see new development in the Milwaukee market.”

Opportunities for Class B space to upgrade as office demands change

Companies are investing more in their physical space and will shed square footage for more updated spaces, Savoie said. As Class A space filles up, there will be more opportunities for Class B owners to renovate and improve their lobbies and amenities as well, he added.

“Class B has struggled over the last two years and has accounted for a lot of negative absorption in any market,” Savoie said. “That’s going to give them an opportunity to revamp. As they have this larger vacancy, they will get in front of larger users who don’t need Class A space or want to build a new building. In the coming years you’re going to see a lot of reinvestment and redevelopment of Class B buildings,” he added.