Picture the economic collapse of the late 2000s, and your mind will likely be filled with visions of boarded-up businesses, widespread company branch closings and vacant shopping malls.
Fortunately, today paints a much brighter picture in terms of commercial real estate, and many experts affirm that the market is recovering. The growth is gradual in many cases, but still serves as an indicator that the commercial real estate market is bouncing back — slowly but surely — following the financial crisis.
“It’s been on a very gradual rise,” Garritt Bader, principal at GB Real Estate Investments, LLC, says. “Things are definitely better than they were at the depths of the recession.
However, Bader also mentions that many gains in the commercial real estate market have been subcategory specific.
From office and retail to industrial and multifamily complexes, commercial real estate encompasses numerous segments. But, for the most part, they all appear to be on the up and up.
“There’s been strength across all segments,” Troy Rademann, commercial real estate senior adviser at Bomier Properties Inc., says. “That’s nice to see.”
Office space is holding fairly steady and even growing in demand in some areas. “For instance, in downtown Green Bay, Class A office space is about 100 percent occupied,” Bader says, “If you have a well-kept, well-positioned office, it’s still a very attractive asset.”
“Commercial real estate leasing and sales of office buildings have been strong in all of our markets,” Mike Pfefferle, president of Pfefferle Co., Inc., says.
In terms of industrial and manufacturing properties, that segment is performing exceptionally well. Space is particularly hard to come by, demand is strong, rents are up and occupancy levels are at an all-time high.
But, there’s likely no market doing better than the multifamily segment.
“The multifamily market is probably the hottest of all of them,” Dane Checolinski, director of the Sheboygan County Economic Development Corp., says. “There’s a high demand for rental housing, and it’s a market that we see multiple players playing in.”
The growing desire to rent is attributed to a few different factors. Many young adults grew up watching their parents ride the waves of the financial crisis and now find securing a home loan intimidating. Household sizes have decreased, and employment trends mean many professionals now jump from job to job rather than staying with the same employer for decades — meaning that renting is a lifestyle choice that makes the most sense.
Slow growth for retail
If there’s one market that seems to be the fabled tortoise in the commercial real estate race, it’s retail. While it’s making a resurgence, growth has been much slower than other segments.
Rademann says there are a couple of factors at play in the slow recovery of the retail segment. First, limited disposable income is an important consideration.
“Another aspect is that markets are over-retailed,” he says, “There isn’t really a need for the same national retailer in multiple locations up and down the Valley.”
He also cites online shopping as a large reason many stores have closed brick and mortar locations.
However, many still express optimism about the future of retail developments — particularly with large retailers, including Costco and Meijer, making their way into our market for the first time. “I think we are starting to see a resurgence in retail development,” says Checolinski. “Retail in general has been the next best performer in Sheboygan County.”
Most are also hopeful that the addition of these new big box locations will send a ripple through the pond and inspire other commercial development in the area.
A ripple effect
“National big box retailers really have their own gravity,” Rademann says. “They attract their own co-tenants and small tenants, and that will continue. There will always be people who want to be by big traffic generators.”
Look at the smaller buildings — like Starbucks and Buffalo Wild Wings — that have begun to pop up around the Costco in Bellevue, and you’ll see that this ripple effect is strong, he says.
“In certain areas, projects can have big impacts,” Bader says. “Just look at Festival on University Avenue (in Green Bay).”
That new location will likely have a large influence on the area around it — and perhaps even help to kick off an entire redevelopment project along that corridor.
From the major developments in the Titletown District to expanded or new office spaces for companies like Secura and Navitus, it’s safe to say the future looks bright for commercial real estate.
“The overall commercial real estate market, in my mind, is strong and continuing to grow,” Pfefferle says. “I foresee quite a bit of activity happening over the next five years.”
This activity has been helped along by municipalities that are willing to put in the time, resources and elbow grease to attract developers to their area. “I work with a lot of municipalities, and I’m very encouraged by many of their approaches to say, ‘What can we do? We want people to come here,’” Rademann says.
He mentions that it’s promising to witness that partnership between the public and private sectors.
“Developers get approached by people like me all the time asking them to check out their community,” Checolinski says. “What really grabs their attention is when you can throw a third-party study out and prove that your market is being underutilized. It’s taken very seriously by the development community, because we’ve done our homework — and we owe that to them.”
If that effort continues across the area, growth in commercial real estate will continue to rise.
“This is my 23rd year doing this, and I have never been more excited,” Rademann says. “I’m very optimistic that we’re going to see people and companies wanting to move ahead here.”