Office vacancies will fall and rents will rise in the Milwaukee market this year, thanks largely to an increase in professional and business services jobs, according to the second quarter office research report released by Marcus & Millichap.
That’s good news; without the growth in this sector, vacancy rates would not fall nearly as much this year. Even with the drop in unemployment in Milwaukee, vacancy rates in the office sector in this market are still more than 500 basis points above where they stood before the recession hit.
The amount of new office construction will soar this year in the Milwaukee market, with Marcus & Millichap reporting that 600,000 square feet of office space will be delivered in the metropolitan area this year, up from 137,000 square feet last year.
The major chunk of this space are build-to-suit expansions, including new headquarter buildings for Kohl’s and Northwestern Mutual and the new ProHealth Care Cancer Center. Because of this, new office construction will have little impact on office vacancy rates here.
Marcus & Millichap says, too, that office conversions will continue to lower the vacancy rate in Milwaukee’s office market. Developers here, as in many other cities, are turning outdated office buildings into multifamily developments. Milwaukee’s Commerce Building on Fourth Street is one example, as is the former home to Blue Cross Blue Shield of Wisconsin on West Michigan Street.
Overall, Marcus & Millichap predicts that office vacancy rates will drop 30 basis points in Milwaukee by the time this year ends, falling to 15.3 percent. Net absorption will top 600,000 square feet, up from 270,000 square feet in 2014.
Rents will increase this year, too, in the area’s office sector, with Marcus & Millichap predicting that asking rents by the time 2015 ends will have risen 1.1 percent to $16.16 a square foot, up from a dip of 0.7 percent last year. This will mark the first time office rents in Milwaukee have risen in five years.