INSIGHT ON: Commercial Real Estate – Variable vacancies

Posted on Sep 2, 2014 :: Commercial Real Estate , Insight On
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Posted by , Insight on Business Staff Writer

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The adage “location, location, location” definitely rings true these days when it comes to commercial real estate. Depending on the sector and where you’re located, there may be plenty of space available, or little to be had.

For example, businesses looking for Class A office space in downtown Appleton have few options available, while in other locations, such as Green Bay, Oshkosh and Fond du Lac, the space is plentiful.

“The vacancies for commercial office space are 10 to 15 percent, and if you are looking downtown, it’s even lower,” says Mike Pfefferle, president of Newmark Grubb Pfefferle, which has locations in Appleton, Green Bay, Wausau and Madison. “The market is extremely strong now for office space, which is great news. Some areas, such as Green Bay, have a lot available.”

In Green Bay, businesses moving downtown to a new building (such as Schreiber Foods) or refurbished space (for example, Associated Bank) have left office space in other areas open. While West Business Services announced in July it would lease a portion of Associated Bank’s former corporate headquarters in Ashwaubenon, the rest of that building remains vacant.

In Fond du Lac and Oshkosh, a lot of office space is on the market, says Tom Ackerman of ZA Commercial Real Estate in Fond du Lac. However, if owners are willing to drop their price-per-square-foot by a few dollars, they’re more likely to find tenants.

“If you have space for $12 per square feet, it’s going to sit awhile, but if you drop it to $8 or $9, I might be able to find someone for it,” he says. “Prices are not what they used to be.”
In Appleton, once-vacant mixed-use buildings and office buildings are finding new tenants. The commercial and office space at 400 North – the commercial and office part of Richmond Terrace near downtown – has added several tenants in the past year (including Insight Publications) after sitting vacant for years.

One of 400 North’s new tenants is what would be the downtown’s first grocery store – a larger version of Green Gecko Grocer & Deli, which has a much smaller space in City Center Plaza. The new, 2,000-square-foot shop will be a combination of a grocery store with a few staples and fresh fruit, veggies and meat and a restaurant offering a counter where guests can order and eat meals. Another new tenant is GBA Fitness, which recently opened a 3,100-square-foot fitness center.

Commercial real estate developer Dave Allen, who purchased 400 North with other local investors, says the building’s turnaround has been dramatic in the past year. He attributes it to local owners willing to work with local businesses.

“We know the market and want to work with tenants on a plan that works. We’re in talks now with a number of other possible tenants and if those come through, we’ll have up to 70 to 80 percent of the commercial space filled, which is phenomenal,” he says. “We’re really excited about Green Gecko, since area residents have talked for a long time about the need for a grocery store. Now people living in Richmond Terrace can come down in their socks to grab a cup of coffee (without going outdoors) or pick up something they need. It also fills a key neighborhood need and will attract area residents.”

Another office building, the former Renaissance Building on West College Avenue, is finding new life after sitting vacant with Concordia University already in place and other large tenants looking to sign leases. The building’s owners spent $1.5 million to remodel the space for new tenants.

“I think it’s almost getting to the stage in Appleton where new construction of a Class A office building may be needed,” Pfefferle says.

While office space availability differs from market to market, another commercial real estate sector – manufacturing – is picking up across the board, local developers say.

“We entered the downtown in Fond du Lac extremely short on industrial space and now we are back to that point again,” Ackerman says. “Finding industrial space is hard. We take that as an overall good sign for the economy that manufacturers and warehouses are keeping busy and need space.”

Pfefferle agrees that industrial space is in demand. The Fox Cities, however, does have a unique facility on the market – the former Plexus Corp. manufacturing facility in Neenah. The company vacated the site a year ago when it consolidated facilities into a new, $50 million plant. The vacant Plexus site has more than 180,000 square feet ready for manufacturers.
“Overall, the manufacturing and warehousing market is strong. That’s a unique space that’s available and one that doesn’t come around very often,” Pfefferle says.

Retail and hospitality markets remain uneasy with some spaces being snapped up – usually by national retailers, Ackerman says. For example, Walgreens is taking a new parcel in Fond du Lac and Kwik Trip, a regional player, is constructing several convenience stores in the area. But at the same time, there are several spaces that previously housed restaurants and bars that remain empty.

“We’re definitely cautiously optimistic about the future. 2014 has been better so far than 2013,” he says.