COMMERCIAL REAL ESTATE – Holding steady – Office and manufacturing space sees some growth; retail, not so much

Posted on Sep 1, 2012 :: Commercial Real Estate
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Posted by , Insight on Business Staff Writer

Commercial real estate is a simple, visible way to gauge how the economy is doing. See a lot of vacant storefronts or buildings? Things might not be going too well. See companies building new locations? It’s likely the economy is in a growth mode.

Right now, the commercial real estate market is between those two extremes with some areas seeing growth while others deal with excess capacity.

“Targeted development is still happening,” says Ken Zacharias, a shareholder in Schenck SC’s Green Bay office. “The development we’re seeing is if a company is expanding or a company wants a new location.”

A perfect example of the latter is the massive Cabela’s going up in Green Bay, he adds. Cabela’s wanted to be in the market and the outdoors retailer found a site to fit its needs. Construction on the massive 100,000-square-foot store has already started and is slated to open next year.

“Since the economic downturn, speculative development is not happening. You need to have signed leases, quality tenants and cash put in by the developer if you want a project to happen,” says Zacharias, adding that financial institutions won’t move on a project unless those three items are in place.

Manufacturing is one segment of the commercial market that shows continued growth, says Mike Pfefferle, president of Grubb & Ellis | Pfefferle.

“Owner-occupied manufacturers are doing very well and many are looking to put capital back into their businesses with expansions or new equipment,” he says. “Most industrial properties that are for lease are being absorbed by companies that are doing well right now.”

Terry Bomier, president and principal broker of Bomier Properties Inc., agrees. He says anyone owning space that can be used for manufacturing is in a good position. “Manufacturers are great at taking a building and retrofitting it for their own use, and if that doesn’t work, they will build new,” he says.

Office space is another area holding its own, Pfefferle says. “In Appleton, there are few large office spaces available. Downtown, if you’re looking for a lot of space, you’re not going to find it,” he says, adding that the 222 Building is nearly full.

Away from the downtown, the Renaissance Building on W. College Avenue in Grand Chute near the Fox River Mall remains the largest vacant office space in the Fox Cities.

Several large construction or remodeling projects related to office space are in the works across the region. In downtown Green Bay, for instance, two companies are setting up new headquarters. Schreiber Foods Inc. is building a 250,000-square-foot headquarters and research center, while Associated Bank is remodeling the Regency Center’s six floors before moving 500 employees to this new centralized location.

In downtown Neenah, Bomier and fellow developer Steve Winter are proposing to build two buildings that would be a mix of office and restaurant space. The two buildings – one will be 8,500 square feet while the other will be 11,800 square feet – will be divided into space for restaurants, financial offices and professional offices, such as medical providers. Construction on the project, which is estimated to cost between $3 million and $4 million, is expected to start next spring.

While office and manufacturing spaces are doing well, the retail sector is still lagging, Pfefferle says. While Appleton’s east side is home to several new retail and restaurant construction projects, that isn’t the norm in the area, he says, adding there are still a lot of empty retail spaces near the Fox River Mall in Grand Chute. “Some of those sites are quite large,” he says.

As for land sales? Those are few and far between, Pfefferle and Bomier say.

“We’re working our way slowly back from 2008, which was where the bottom fell out of everything,” Bomier says. “We’re seeing more activity, but in many cases it’s people looking to economize. It’s not necessarily new business.”

Pfefferle says business owners are more optimistic than they were a few years ago, but many are taking a wait-and-see approach before making big investments. “It’s more difficult to get financing so businesses want to make sure before they take a leap” into a new space, he says.

Over the past few years, municipalities have worked to entice developers and now are starting to see the fruits of their labors, Zacharias says. “That hard work is turning into good things,” he says.

A CLOSER LOOK

You need to store that?

Throughout the economic upheaval of the past few years – one that we hope is over – one commercial sector didn’t miss a beat: private storage units.

Mike Pfefferle, president of Grubb & Ellis | Pfefferle, says his company’s storage units continually maintain about a 4 percent vacancy.

“People always have stuff to store and unfortunately, if someone has to sell their home and downsize because of the economy, they need a place to put the rest of their stuff,” he says.