Space jam

Demand for warehouse, industrial properties exceeds supply

Posted on Jan 30, 2019 :: Commercial Real Estate
Posted by , Insight on Business Staff Writer

Businesses in need of warehouse space or room to expand their manufacturing may be hard-pressed to find some.

With a vacancy rate between 2 and 2.5 percent, the New North’s industrial real estate market is tight, says Manny Vasquez, vice president of business development for NAI Pfefferle.   

“Due to the low supply and high demand, industrial space is generally moving quicker than usual,” he says. “We don’t foresee a decline in demand in the industrial/logistics sector. Nationwide, industrial vacancy rates are down to a record 4.3 percent. For the last nine years, demand has outpaced supply by an average of 94 million square feet nationally.”

The tight market for industrial space is something Mark Pucci, Colliers International’s vice president for Wisconsin, has seen firsthand.

“I had one property that was under contract before we could even begin to market it,” he says. “People needing the space pay close attention to whenever something comes available.”

The strong manufacturing market — Wisconsin added the second most manufacturing jobs in the nation in 2018 — is driving the demand for warehouse and industrial space, says Terry Bomier, president and principal broker for Bomier Properties Inc.

“Companies are doing well, and they need the additional space,” he says. “If you have a clean, well-built building, it will go fast.”

While demand is high for industrial space, there is little new construction. Vasquez says developers shy away from building new facilities because of rising supply expenses and high labor costs.

“The lack of new construction is certainly a factor impacting the industrial inventory, particularly well-lit modern warehouse and distribution space with a high-bay and multiple docks,” he says. “We don’t predict the demand for warehouse and industrial space decreasing anytime soon.”

One exception: Becknell Industrial, an Illinois-based developer of industrial properties, is building a new warehouse and distribution center in Appleton’s Southpoint Commerce Park for an undisclosed client.

 

Combining uses

If you keep up-to-date with the latest economic development projects throughout the region, there’s one phrase you’ll keep hearing repeatedly: multiuse.

“Multiuse buildings serve more than one purpose,” says Mike Maedke, who handles office and retail leasing and marketing for Commercial Horizons. “It could be a building that combines public and private spaces, office space above retailers, living space above retailers. It’s all about convenience — people want to work, play and stay in the same area.”

Commercial Horizons is the developer behind the proposed new Appleton Public Library in the city’s downtown, which in its first phase includes 100 apartments or condos and retail space in addition to the library. The second phase of the project will add 200 more apartments, a restaurant and a new public parking ramp.

Pucci of Colliers says multiuse projects tend to be more popular in downtown areas where space is at a premium. Green Bay is home to several mixed-use properties, including the new Rail Yard and the Green Bay Packers’ Titletown development.

“That area has residences, office space, a restaurant, a hotel, a health care facility and retailers,” he says. “As Titletown develops, I’m sure the area around it will also grow.”

Smaller cities also are attracted to multiuse developments, Pucci says. “Using one building for multiple purposes is just a smart idea,” he says.

Cities play a key factor in making multiuse projects work, Vasquez says.

“Working on downtown projects can be costly due to space needs or if the property needs to be remediated at all. That’s why public-private partnerships are key, especially with the multiuse projects,” he says. “If cities use their TIFs wisely, it can really generate economic development. TIFs are sometimes needed to make the numbers work in a downtown project.”

 

Adjusting to change

From his office off College Avenue in Grand Chute across from the Fox River Mall, Bomier has a front row view to various retail trends. During the 1990s and early 2000s, it seemed like retail space could not be built fast enough as additional stores and restaurants entered the Green Bay, Fox Cities and Oshkosh markets.

“Looking at the mall, they’ve lost Younkers and Sears as anchors in the past year,” he says. “That’s a lot of space that needs to be filled. And medium-sized retailers like Dress Barn or Ann Taylor are also moving out.

“I have one word for it: The Amazon effect. There is a lot less traffic in malls as more people decide to shop from home. Our restaurants are still doing well, but there’s less excitement around the retail spaces.”

Vasquez, whose firm is marketing the former Younkers store for lease, says malls need to reimagine their spaces.

“In some places, malls have added a walk-in health clinic, which increases foot traffic into the mall and allows the health care provider to meet patients in a new environment,” he says. “In the Fox River Mall, for example, there is now an Orangetheory gym. It brings more people to the mall, who will then perhaps do some shopping or notice something and come back for it. It’s about increasing foot traffic.”

The Fox River Mall is not the only mall with empty anchor storefronts — Bay Park Square in Ashwaubenon has two vacant anchor spots created when Younkers and Younkers Furniture Store closed.

Shopko’s recent announcements about closing some stores also will create large, vacant retail properties.

But there are some positives with retail space. Restaurants are doing well, and the addition of the big box retailers Costco and Meijer to both the Green Bay and Fox Cities markets has spurred growth around their stores, Pucci says.

“You put in something like that and development increases in the outlots because retailers, service providers and restaurants know there are going to be a lot of cars passing through,” he says.

There are a couple of bright spots for the local retail scene: H&M is moving into the Fox River Mall in 2019, which could bring in other retailers, and downtown shops seem to be doing well.

“As businesses relocate their headquarters to the downtown area, these shops and restaurants now have much more foot traffic,” Vasquez says. “We’ve seen that with Plexus in Neenah and I’m sure that will be the case once U.S. Venture moves to downtown with their 600 employees. They will be on the lookout for places to eat, shop and grab coffee. That can only be good news for those downtown.”