The Southeast Wisconsin industrial real estate market remained strong in 2023, but softening demand from larger tenants along with over 10 million square feet of new construction, mostly in Kenosha, has caused a notable increase in the overall market vacancy rate from 4.4% Q3 2023 (Source: CARW/Catylist) to what will likely exceed 5% for Q4 2023. It’s important to note that availability of spaces under 100,000 square feet remains minimal with these hard-to-find spaces trading at a premium.
An abundance of large, older industrial space is either listed or potentially coming to market in Milwaukee County, including the Regal Rexnord campus (listed by PARADIGM), Stellantis plant, former Journal Sentinel facility, Master Lock, Komatsu, and Briggs and Stratton. These sites total a substantial 4 million square feet of space, according to the BizTimes.
Arguably the biggest news of 2023 was Microsoft’s plan to purchase 1,345 acres of land in Mount Pleasant and build a $1 billion data center, which we believe will spur additional development and fill-up nearby vacancy. This mega site was made possible by the improvements, infrastructure and tax incremental district previously created for the Foxconn development.
Since July, the Federal interest rate remains steady at 5.25% to 5.5%, which is a change from the volatile interest rates we experienced causing banks to stop lending and overall market
activity to slow. We are now seeing lending rates compress for a variety of factors, which is restoring a sense of positivity to the commercial real estate market.
The effects of recent Inflation, which has slowed to 3.1%, are still being felt in every sector of society, including increased supply and production costs. Because of this, new construction for most developers and users will not be a viable option in the first half of 2024, unless caused by a unique factor such as expansion.
In line with stale supply and hiked interest rates, new development activities have slowed down significantly in both our local market and across the United States. Nonetheless, as the market and interest rates stabilize, we anticipate these large vacancies to gradually fill, leading to more tightening of the industrial supply later in 2024.
Wisconsin experienced a slight uptick in unemployment of 3.3% at the end of 2023, contributing to the ongoing labor shortage. The US ISM Manufacturing PMI (Purchasing Managers Index) is currently at 47.40, which is up from 46.70 last month and down from 48.40 one year ago. An index number above 50 shows an expanding economy and currently both manufacturing and supply indexes are below that mark.
PARADIGM can help you strategize your next steps in this constantly changing industrial real estate market.