The Milwaukee market appears to have followed the national economy and has emerged from a frozen start to the year with consistent and stable growth. User demand has pushed up pricing on Class A/B+ industrial product to levels that we haven’t seen since 2007. The Milwaukee Area/Northern Illinois ISM Manufacturing Index increased to 63.18 in September from 59.63 (north of 50 is expansionary) and the new orders index jumped to 75 from 67.9. I am anticipating a strong surge in investment through 2015 as the real estate cycle has transitioned into growth phase. All indications are that capital expenditures from corporate America will continue to accelerate and some analysts are projecting equipment spending to surge 10% in 2015.
2014 Q3 – The Data
- Total absorption in SE Wisconsin through Q3 of 2014 has totaled 3.35 million SF(Source: Xceligent)
- The SE Wisconsin vacancy rate has finally cracked the 6% mark and is being reported at 5.53% (Source: Xceligent)
- Quality user buildings have appreciated 20-30% from 18 months ago. User building sale comps for well conditioned, modern product in the 10-40,000 SF range have soared from the low $50/ SF range to the $60 – $70/SF range within 18 months.
- Kenosha County has remained the dominant market to talk about….and with good reason. Since January of 2013 the County has experienced announcements of 6.5m SF of new construction/absorption. With several new business park developments in the works expect this corridor to continue with its torrid pace. This will continue to remain a BIG deal market with most occupiers searching for 100,000 SF and up.
2014 Q3 – The Trends
- The cost of new construction, and the limited availability of developable land sites with Interstate access, is leading to an inflationary market for existing quality product.
- Class B/C industrial product is still viewed as a commodity. First Industrial recently traded a 2 building portfolio in the New Berlin Industrial Park in the $27.50/SF range.
- The strength of the investment market has trickled down to shorter term lease deals. The market presents an excellent opportunity for sellers to maximize value.
2014 – Q4 the Forecast
- Expect interest rates to remain stable and the yield on the 10 year may stay below 2.5% with recent global uncertainty. Expect continued compression of cap rates as long as the interest rate climate remains stable.
- The Wisconsin Gubernatorial election is having some impact on user decisions, with the recent announcement of a company planning a new 68,390 SF facility in Germantown stating as such. The Walker Administration policies towards the manufacturing community have been very pro growth and I am predicting several announcements of manufacturing expansions throughout the State should Walker prevail.