ECONOMIC OVERVIEW

The Milwaukee office sector remained relatively stable for the second quarter of 2013.  Vacancy rates posted modest decreases, construction and leasing activity is up, while sales activity decreased slightly over the prior quarter.  However, job growth and economic development in Wisconsin is falling behind the nation.  According to the Federal Reserve Bank of Philadelphia, Wisconsin’s six-month economic forecast ranks 49th in the nation.  In addition, The U.S. Chamber of Commerce ranked Wisconsin last out of 50 states for short-term job growth, while the U.S. Bureau of Labor Statistics shows Wisconsin 31st in total job creation for the 2012 calendar year, an improvement from a year ago when Wisconsin ranked 44th in the nation..  The U.S. Department of Commerce’s Bureau of Economic Analysis reported that Wisconsin’s economy grew at 1.5 percent in 2012, a statistic that is behind all of our neighboring states and 32nd in the nation.

Office MarketBeat Q2 2013 pic1OFFICE MARKET

The Southeastern Wisconsin office market continued to show slight improvement in Q2 2013 as the vacancy rate decreased 40 basis points over the past quarter to 20.3%.  In addition, absorption remained positive year-to-date, but slowed slightly in the second quarter when compared to the prior quarter.  The suburban office market and the Central Business District (CBD) both posted modest positive absorption with the suburban market posting 44,311 sf of positive absorption and the CBD posting 41,064 sf in Q2 2013.

INVESTMENT ACTIVITY

Wisconsin welcomed a new investor into the market in the second quarter of 2013.  Broadstone Net Lease Inc., a private New York Real Estate Investment Trust (REIT), acquired four medical office properties in Wisconsin from Irgens Partners, LLC.  The portfolio sale of 6 medical office properties, located throughout Wisconsin, Illinois and Arizona, represented a combined sale price of $46.5 million.  The leased properties within the portfolio were to market-dominant hospital systems with attractive credit ratings.  Each lease is NNN with modest annual rent increases and remaining lease terms in excess of ten years.

Office MarketBeat Q2 2013 pic2OUTLOOK

The Wisconsin economy as a whole has lagged other states with continued slow job growth and economic recovery.  Although the numbers trend in a negative light as of late for our overall economy, the office market currently has no consistent trend when analyzed over the prior three years.  When you view the office market over the past two quarters, there is a glimmer of hope with the sector posting two quarters of decreased vacancy, a 70 basis points decline, as well as two quarters of positive absorption.  One of Milwaukee’s premier hiring firms is predicting “vigorous” hiring in the Milwaukee area in the third quarter and should that pan out, demand for office space should increase, helping assist in the continued positive absorption and downward vacancy rate trend.

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