Commercial Real Estate and Office Space Market in Wisconsin
Wisconsin's business climate is characterized by a bullish outlook across many fronts, from business optimism levels to its economic vitality index (1). This environment has proven to be favorable to the growth of the local real estate sector, and in particular it has benefited the commercial property sub-market, whose performance is examined in detail in the following report.
Office Space Market
With a population of nearly 600,000 people and being home to more than 32,000 registered businesses, Milwaukee one of the largest and most prosperous cities in the United States (2). As a result, the local commercial property market is one of the most active in the MidWest, and this is particularly true of the office sub-market, which has recently experienced a boost as the local unemployment rates dropped to levels below the national average. Despite the slight increase in average vacancy rates (from 19.7 per cent in 2014 to 20 per cent in Q2 2015), direct asking rates have been increasing in most Milwaukee sub-markets, reaching average values of $19 / sq ft. Rental values have increased beyond the city's average in Mayfair / Wauwatosa ($25.55), downtown East ($23.75), and North Shore ($22.25). As for the suburban office market, direct asking rates have also increased slightly and average $17.63 / sq ft, although they are slightly higher in the Waukesha / Pewaukee area. Cushman & Wakefield report that there is significant activity along the Park East corridor, where many warehouses are being converted into office or mixed-use space (3).
Researchers at Colliers International have drawn attention to another noteworthy trend affecting the Milwaukee office market, whereby companies are increasingly favoring urban office space and moving away from suburban office developments. Recent data show that there are more than 186,000 office-based jobs in the city, the highest number since 2009. This flight to more urban environments seems to reflect the preferences of millennials, who are entering the local job market in large numbers, especially in sectors like finance and high tech. In this respect, activity levels are particularly high in the central and northwestern sub-markets, which are set to outperform all other sub-markets by 2017 (4).
Retail and Industrial Space Markets
The Metro Milwaukee area boasts a booming retail property market, which has been boosted by increasing economic stability, augmented consumer confidence, and decreasing unemployment rates. In fact, retail construction levels in Milwaukee are among the highest in the country, only preceded by New York and Miami. There is a focus on improving the existing retail infrastructure across Milwaukee in order to satisfy growing demand, especially in terms of shopping malls and mixed-used developments. Some of the areas earmarked for future retail growth include Mayfair, Brookfield Square, Brookfield Corners, Drexel town square (5).
With regards to the industrial property market, the local indicators point at the market's resilience despite a decline in the most recent Wisconsin manufacturing index. A Q2 2015 report published by Cushman and Wakefield shows that vacancy rates have dropped to 5.1 per cent and are expected to remain around this level during the next 12 months. The report also highlights the notable increase in leasing activity levels, which were up by 11.3 per cent at the time the report was published. Vacancy rates for industrial properties in the Metro Milwaukee area average $4.11 / sq ft. In suburban areas, the highest direct asking rates are in Washington County (where they range from $5.32 to $6.47) and in Waukesha County, where they fluctuate between $4.57 and $4.72 and where an important number of speculative developments are under construction (6).
Tax Breaks, Business Incentives and Support
Wisconsin-based businesses have access to a range of incentive schemes that have been created to promote job creation, support the local real estate market, and boost the state's competitiveness levels. As it is the case with other US states, sales and use tax exemptions apply to companies engaged in biotechnology and manufacturing, which can provide tax relief against the costs of real estate, machinery, and business equipment. Research and Development facilities tax credits are also available to eligible companies that build, invest in, or expand their R&D premises, as are manufacturing and agriculture tax credits and property tax exemptions applicable to a wide range of manufacturing activities (7).
In addition, the local government has made available a number of Economic Development tax credits in order to promote the creation and retention of full-time jobs in the state (8). Other incentives created by the Wisconsin Department of Revenue include Community Rehabilitation Program Credits (9), Deferral and Exclusion of Long-Term Capital Gains Tax (10), and property tax exemptions applicable to renewable energy systems (11).
(4) http://www.colliers.com/-/media/files/united states/markets/wisconsin/market reports/2015_q2_milwaukee_office_report.pdf
(5) http://www.colliers.com/-/media/files/united states/markets/wisconsin/market reports/q2_ 2015_milwaukee_retail_report.pdf