With a vacancy rate of 2 to 3 percent, the availability of Northeast Wisconsin industrial real estate remains tight. At the same time, the demand for this kind of space remains high.
When clients reach out to NAI Pfefferle seeking industrial space, the company typically doesn’t have a lot of available options to present, says Manny Vasquez, Pfefferle’s vice president of business development.
“There’s a real need for that kind of product,” Vasquez says. “From an economic development standpoint, our concern is that local and outside companies aren’t able to find existing space to expand into or locate into to continue to grow their business.”
While Vasquez says Northeast Wisconsin isn’t the only region facing this issue, the fear is that the companies will turn to other parts of the state or nation to locate their developments if they can’t find what they need here. Some already have, he says.
Most industrial buildings going up in the region are build-to-suit properties, Vasquez says. These are built for a particular use for a specific tenant with zero or very little extra space that could be used for someone else.
Culturally, Northeast Wisconsin is a fairly conservative market, and most municipalities haven’t aggressively pursued constructing buildings on speculation, Vasquez says. Constructing more spec buildings could help address the problem. Some projects in the pipeline will add square footage soon, but concern remains about whether this will be enough and whether companies will be willing to wait, he adds.
Increasing construction costs also contribute to the problem. “I think a lot of developers are looking at construction costs and the fact that they have trended up in the last few years and crunching numbers and realizing that to make those new buildings financially feasible, they need to charge higher rent and lease rates,” Vasquez says.
Several factors are driving the demand. The economy remains strong despite some concerns of a looming slowdown. Manufacturers continue to do well. The NEW Manufacturing Alliance’s 2020 Vitality Index showed 32 percent of respondents plan expansions in 2020, and 68 percent plan modernization efforts.
Companies are looking to grow, and this creates more demand for warehouse and distribution space, Vasquez says. This is especially the case as online and e-commerce business continues to grow, only upping the need for these kinds of facilities.
Of course, the strong demand is a good problem in many ways … but a problem, nonetheless. Addressing the issue could require some municipalities, companies and developers to shift their approaches a bit, Vasquez says.
To meet the need for more industrial space, some companies are shifting the way they use their square footage. Traditionally, most manufacturers have had production space in the back of their facilities and the office in the front. Companies are increasingly looking at splitting the office from the industrial or production area to more effectively use that manufacturing space at their facilities.
Vasquez points to Pfefferle client Tweet/Garot as an example of this. It chose to move its main office to downtown De Pere and build a 90,000-square-foot manufacturing facility in Wrightstown. The Wrightstown location gives the company good visibility off Interstate 41, and the desirable downtown location helps with recruitment efforts. Faith Technologies employed a similar strategy with its downtown Menasha headquarters.
“I think that’s a trend that ties into strategically recruiting labor, creating an attractive space for your employees,” Vasquez says.
Some Pfefferle clients who have extra space have begun reaching out to the commercial real estate group to see if they could sublease space to tenants who are looking. This kind of arrangement creates a win-win, Vasquez says. The space gets used and the landlord reaps additional revenue.
Investing in industrial parks
Some municipalities have added industrial parks to make themselves more appealing. These municipality-owned plots of land can offer flexibility from a cost standpoint and provide an attractive place to locate, Vasquez says. They often have infrastructure in place for industrial users and typically offer a shovel-ready option in an appealing location, he adds.
The features companies seek depend on the planned use, but common amenities on their wish lists include higher ceiling heights, several loading docks and proximity to the highway — especially for distribution and logistics companies. Some companies also may need the infrastructure to support heavy power use levels.
The City of Sheboygan invested $11 million to complete its 147-acre SouthPointe Enterprise Campus. The project was part of a strategic move to help the city become more competitive on the industrial front, says Chad Pelishek, director of planning and development for the City of Sheboygan. The industrial park sits adjacent to Interstate 43 and offers lot sizes between 2 and 20-plus acres with connections to water, gas and electric.
The City of Oshkosh also has invested heavily in industrial parks. Its Southwest Industrial Park includes a feature that sets it apart: the Oshkosh Transload Terminal. The city and Watco Companies funded the $2 million, 11-acre development with the assistance of a $1 million Transportation Economic Assistance grant from the Wisconsin Department of Transportation. It is the first and only publicly owned transload facility in the state.
The $2 million facility includes two rail spurs with a ramp off each end and 100 feet of loading space trucks and cranes can use to load and unload commodities. A wide range of businesses have taken advantage of the facility, including Oshkosh Corp., which uses it to transport its Joint Light Tactical Vehicles as well as for receiving trucks coming back for repair.
“We’re seeing that the transload has a regional draw for just another alternative for shipping,” says Kelly Nieforth, economic development services manager for the City of Oshkosh.
The development has proven successful for the city and Watco, the owner of Wisconsin & Southern Railroad. The city is working with three prospects to purchase 60 acres in the Southwest Industrial Park, and Watco is working with interested parties to add warehouse space to the transload facility.
Promotional products company 4Imprint added 87,000 square feet to its warehouse and manufacturing space in the Southwest Industrial Park and purchased a vacant lot for future expansion.
The City of Oshkosh also scored a win with construction of Alro Steel’s new 194,000-square-foot facility on Poberezny Road. In addition, the Oshkosh Aviation Park, which caters to the niche market of aviation businesses, will soon get a new taxiway that will provide direct connection from Wittman Regional Airport to the park.
Nieforth says the city is taking a three-pronged approach to industrial development: offering shovel-ready land, having land it’s purchased but still needs utilities and infrastructure, and identifying land to acquire for future growth areas.
“As people start to buy land, it’s important that we’re looking ahead to the future so that we have more room for growth and more land to expand,” she says.
Attend Insight’s March 18 InDevelopment event at the Best Western Premier Waterfront Hotel & Convention in Oshkosh to hear an Industrial Real Estate Outlook panel discussion.