Milwaukee - Industrial Re:Cap

During the late 19th century, Milwaukee became a bustling trading hub for grains, leather, and beer. Then, as the industrial revolution began, manufacturing became the city's lifeblood. Large industrial warehouses, steam engine manufacturing plants, and car factories riddled the skyline. But through the 20th century, America's deindustrialization led to the city's downfall of many large manufacturing plants. Today, Milwaukee remains a global leader in advanced manufacturing and is the 4th highest ranking metro in the US for corporate headquarters. According to our featured guest, Adam Maston, with the resurgence of US manufacturing, Wisconsin is beginning to gain attention from big tech because of its affordable land and ease of doing business. Adam Matson, SIOR , is the Managing Director at Newmark's Milwaukee office. Matson specializes in the sale and leasing of industrial buildings throughout southeastern Wisconsin and has been involved in over 900 transactions totaling 14 million square feet.?

The Milwaukee and southeastern Wisconsin markets briefly paused at the end of last year. However, as the forecast on interest rates and inflationary numbers settle, investment and leasing demand has made a rebound. As a result, Q1 of this year is now the 18th quarter in a row of positive absorption. According to Matson, investment demand from national REITs and private equity has increased tremendously over the previous three years; cap rates hit their lowest point last year, nearing 4.25%. In addition, companies are moving out of Chicago and into southeastern Wisconsin because of lower rental rates, stable government, and similarities in geography. "Our outlying suburbs, Pewaukee, Waukesha, and Oconomowoc, are all getting distribution sites and a lot of activity as they are great access points to the Twin Cities," Matson stated.?

Market Snapshot

The Milwaukee market totals just over 326 million square feet and, as of Q1, has 6.5M square feet under construction. The vacancy rate has dropped to an all-time low of 3.09%, and the average asking rent is $4.87. According to Matson, a 150,000/SF new construction distribution site will range between low to mid $5 rents before buildouts. Waukesha and Washington have vacancy levels below 2%, while the highest vacancy rate recorded in Q1 was in Kenosha at over 8%.??

The overall adjusted starting rent has risen steadily over the previous two years. As of January of this year, the median adjusted starting rent was $7.25/PSF, a 25% rent increase year over year.

Utilizing our data from Trepp, 2024 poses the most significant threat to industrial assets in the Milwaukee MSA. Over 4.4M square feet of space will have debt maturities in two years; if interest rates remain inflated it can pose a significant risk for these assets.

Foxconn cons the state

In 2017, Foxconn Technology Group, an LCD phone and tv screen manufacturer, announced its 20M square feet $10 billion capital investment in Mount Pleasant, putting Wisconsin on the map. As a result, the local and state government passed a $2.85 billion tax incentive plan as Foxconn promised 13,000 jobs and the development of 1,200 acres. In short, the company did not live up to its promises, investing only $672 million and creating 1,454 jobs. For years it was considered a massive failure and left a significant gap in the market, but according to Matson, the site has been gaining more attention from global players. To add to his theory, Microsoft recently announced its plans to purchase 315 acres on the site to build a $1 billion data center. If approved, Microsoft will buy the land for $50 million by July 31st.?

Re:Cap Key Takeaway

The Milwaukee industrial market has been gaining more attention from private equity and REITs over the last few years because it traditionally has a higher return compared to Chicago and coastal assets. One of the main attractions of out-of-state investors is the stability of the market. According to Matson, the market has never experienced any boom or bust cycles, even through the Great Recession. It will be interesting to watch the Milwaukee, and the Wisconsin industrial market grow as they continue to gain more attention from larger corporations.

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