The 30.1-million-square-foot Milwaukee general purpose, multi-tenant office market went sideways in the second quarter of 2012. The vacancy rate increased 10 basis points to 19.1% on 50,000 square feet of negative net absorption, but this increase was reversed as of July. No new supply has been added here since the middle of 2011. Net absorption has been flat in 2011 following three negative years.
Reis predicts net absorption at 159,000 square feet for all of 2012, doubling to 353,000 in 2013 and jumping to 675,000 square feet the year after. The occupied inventory is forecast to exceed its 2007 level sometime in early 2015. There are 288,000 square feet under construction, including the 98,000-square-foot Global Water Center, which broke ground in August. Renewed new supply will slow the decrease in vacancy, which is forecast to fall to 18.9% at year-end 2012 and 15.4% at year-end 2016.
Rents were essentially flat in the second quarter of 2012, with the average asking rent at $18.82 psf and the average effective rent at $14.01 psf. The year-over-year increases were 0.4% and 0.6%, respectively. There was little change in July either, but Reis predicts an increase of 1.0% asking and 1.6% effective for all of 2012, most of which would have to occur in the final five months of the year. Slightly stronger gains of 1.7% asking and 2.7% effective are forecast for 2013, with moderately higher gains to follow, but rent levels will remain depressed compared with the past. The current effective average is lower than it has been in 1987, 25 years ago.
“The office market finished the second quarter with 202,227 square feet of absorption of vacant space and a 19.53% vacancy rate,” according to the Business Journal of Milwaukee. “That compares with 19.98% for the first quarter of 2012.” Cushman & Wakefield puts the overall rental rate at $18.68 psf.