Building expansion

Trends in demographics, economic growth fuel commercial construction

Posted on Jan 29, 2016 :: Commercial Real Estate , Insight On
Posted by , Insight on Business Staff Writer

Sometimes it’s what you can’t see.

While the New North region isn’t seeing an abundance of large-scale commercial buildings going up, that doesn’t mean nothing new is happening. In fact, quite a bit is happening in commercial real estate as smaller projects and new opportunities in health care create a market surge.

As the economy has bounced back from the recession, available office and industrial space is at a premium.

“Generally speaking from the industrial standpoint, our business follows the economy pretty closely,” says Tom Scheuerman, managing broker and principal at Newmark Grubb Pfefferle. “We don’t get a lot of new manufacturers building buildings, but there’s been some expansion where they’re moving into larger buildings” as they need inventory space or production space.

According to the Industrial Market Snapshots from Newmark Grubb Pfefferle for the second quarter of 2015:

  • Industrial vacancy in Appleton has dropped to 6 percent and even lower in Oshkosh and Green Bay, with rates of 2.9 percent and 2.3 percent respectively.
  • Very few buildings larger than 50,000 square feet are available, making it difficult to attract large-size companies.
  • The outlying areas of the Fox Cities have the highest industrial vacancy rate, with 11.9 percent. More than 40 percent of that space is found in two buildings: the former Plexus and Mondi facilities.
  • Office space vacancy was 17.2 percent in Green Bay, partially because of new construction for company headquarters such as Schreiber Foods, Foth and Associated Bank, creating vacancies elsewhere. The Fox Cities had an office vacancy rate of 9.5 percent.

Speculative warehouse construction is down and companies needing space of larger than 50,000 square feet will have a tougher time finding space in Green Bay or the Fox Cities.

“I think people are willing to always build space and developers are willing to build it, but I don’t think they’re going to be doing anything speculative,” Scheuerman says. “So they really need to have a tenant in hand before they go out and take a risk today.”

Office vacancy in downtown Appleton was at about 11.3 percent in the third quarter of 2015, down from several years ago.

“Office space has usually been driven by job growth — that’s the primary fuel for that,” Scheuerman says. “I think there are still trends out there with companies being very profit-minded and doing it with smaller office space.”

But if companies are looking to expand or build, now’s the time to do it. “Commercial real estate is certainly helped by the current interest rate environment,” he says. Growth areas include clinics, surgery centers and specialist offices.

“Across the market sector we’re seeing a lot of offices that are struggling with space needs,” says Clay Veldt, director of business development for Hoffman Planning, Design & Construction.

The good news, however, is it means companies are on the move and growing — both office-type environments as well as manufacturing. “A lot of times, that’s not so much design-driven as it is process driven,” Veldt says. “So let’s say a manufacturing facility wants to add a product — how does that product line fit within their current process?”

But one concern — particularly for manufacturers, but also across most industries — is whether they’ll be able to find the skilled workers they need to populate the new space they plan, Veldt says.

“That actually seems to be the holdup now more than anything,” Veldt says. “It’s not about sales and revenue projections, it’s about labor projections.”

In addition to manufacturing, Veldt predicts the strongest growth will come in the area of health care, particularly senior care.

Mark Schwei, executive vice president at Consolidated Construction, agrees senior care and senior living will be a strong growth area, and there is potential in converting, print and packaging and in the pharmaceutical industry.

“Many industries are buying existing buildings that they want us to renovate and put their business into that space,” Schwei says. “There’s a lot of downtown renovation work in the different municipalities going on.”

Construction of the Menasha One tower in downtown Menasha is well underway, while a new office tower has also been proposed for downtown Neenah.

Consolidated is finishing up a 50,000-square-foot corporate center for Werner Electric.

“But that’s a rarity,” Schwei says. “I don’t believe there’s that many large corporate center expansions going on. We’re seeing much more activity on the renovation side and more smaller companies looking to expand their space.”

Industrial manufacturing saw some expansion in the years just after the recession, but now Schwei is seeing some hesitation on capital expansion because of the stock market and other factors.

More good news, though: “Over the last three years, we’ve seen a lot of smaller manufacturers incubate and move into viable businesses,” Schwei says. “There’s optimism for me in some of the small business ventures out there — it’s just that we’ve got to get the stock market to be a little more bullish and eliminate some of the fears.”