Rust Belt Revival: Milwaukee's Manufacturing Renaissance and the Surge of Industrial Investment

Milwaukee, once known as the Machine Shop of the World, faced economic challenges with the decline of manufacturing jobs in the 21st century. However, a resurgence in "Made in the USA" has revitalized the Wisconsin industrial real estate market. In 2023, leasing activity in Milwaukee followed a national trend of slowing down, dropping by 40% to 5.2 million square feet by the end of Q3.

Despite the decline in leasing activity, the market saw an increase in vacancy rates to around 5%, mainly due to the delivery of seven spec buildings totaling over 395,000 square feet. Logistics and warehousing decisions paused, while manufacturing demands in the 50,000 – 200,000 square feet range remained active. Developers are expected to explore multi-tenant scenarios to align better with market needs.

In 2023, the most desirable industrial property in Milwaukee is Functional Class B with short-term lease rolls. Lease renewals outside the option period have seen significant increases, often reaching 20%, with rents approaching $5.00 per square foot NNN, a favorable alternative to new construction costs nearing $7.00 per square foot for sub-200,000 square feet deals.

Manufacturers seeking real estate have faced a supply shortage, raising the value of functional second-generation buildings by over 30%. Owner/user buildings are approaching $100 per square foot. Advanced manufacturing requires more tenant improvement dollars and tightening credit markets have made negotiating above standard improvement packages challenging.

While the 2017 Foxconn project faced setbacks, the infrastructure investments made to attract development are now paying off. Companies like Uline, Haribo, and Saputo Cheese are contributing to user-driven growth, with Microsoft breaking ground on a $1 billion, 315-acre data center development. The access to Lake Michigan's fresh water and a reliable electrical grid are crucial advantages for Wisconsin in attracting advanced manufacturing expansion.

Despite these positive developments, concerns arise about a potential shortage of industrial properties in Wisconsin by 2025. New starts have decreased, and land development faces challenges due to infrastructure costs and opposition. If the surge in manufacturing investment continues, Wisconsin's industrial market could experience a significant vacancy compression to sub 2% by mid-2025, making the 2020s a promising decade for industrial investment in the Rust Belt.