Demand for Commercial Space
Improves in Milwaukee

Milwaukee, an industrial city known for making gritty icons such as Harley-Davidson motorcycles and Miller beer, as well as small engines and mining equipment, is working on a classic American comeback after a decades-long shakeout of its manufacturing sector.

The region's real-estate market still lags behind much of the rest of the country, though Milwaukee's economy began to turn around last year. But some investors are encouraged by changes in what has been dubbed "the world's toolbox." Milwaukee, which grabbed headlines with Spanish architect Santiago Calatrava's winged pavilion at the Milwaukee Art Museum in 2001, has added thousands of new downtown condominiums since 2000.

Changes in Milwaukee have intrigued investors, where the Milwaukee Art Museum's Quadracci Pavilion, designed by Santiago Calatrava, has grabbed attention.

Milwaukee office properties have been selling at prices near the middle of the pack in the Midwest, where values are lower than much of the rest of the U.S., while the city's industrial sector has fared slightly better. Milwaukee offices sold for an average of $109 a square foot for the 12 months ended in September, above the $75 fetched in Cincinnati, but below Chicago's average of $162, according to Real Capital Analytics of New York.

While the warehouse market is strong, the office market is among the country's weakest, according to Property & Portfolio Research Inc., a real-estate research firm based in Boston. Even as Milwaukee's economy began to improve last year, the region's third-quarter office rental rates of $13.66 a square foot were the second-lowest of any major metro area in the country, after Oklahoma City, according to PPR.

Milwaukee's manufacturing base is home to many smaller companies that make a wide array of goods, which helped buffer the region from industry downturns, said Stephen Malpezzi, chairman of the real-estate department at the University of Wisconsin-Madison's School of Business. The region also has employers with heft. It is home to eight Fortune 500 company headquarters, more per capita than New York or Washington, including Northwestern Mutual Life Insurance Co., which employs about 4,600 people in the region, and Harley-Davidson Inc., with about 4,200 workers in the area.

Recent demographic and economic trends have been hard on the region. The Milwaukee area, located along Lake Michigan about 90 miles north of Chicago, saw its population rise just 0.3% to 1.5 million people for the 12 months ended in September, below the nation's 0.9% growth rate, according to Economy.com. Milwaukee's job growth of 0.6% for the 12 months ended in October also lagged behind the national rate of 1.4%, according to the Bureau of Labor Statistics.

With about 107.8 million square feet of inventory space, Milwaukee's warehouse sector is the 15th-largest of the U.S. markets tracked by PPR. The warehouse sector's vacancy rate of 6.7% is nearly three percentage points below the national average, and rents are on the rise, PPR said. Many Milwaukee manufacturers still make and store products in smaller-scale facilities, unlike some areas of the country where new million-square-plus-foot distribution facilities are becoming the norm as the need to meet the growing volumes of imported goods grows.

Local demand comes from companies like Brady Corp., which manufactured labels that could withstand extreme temperatures in World War I aircraft and now makes high-tech parts for products such as cellphones. Brady is adding a 60,000-square-foot warehouse distribution facility to the back of its Milwaukee headquarters where it will store inventory, much of it made in the U.S., said Carole Herbstreit, a company spokeswoman.

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