Market tightening for industrial real estate
What was once nearly 1.2 million square feet of vacant industrial space in Janesville is now buildings buzzing with activity.
Greenhouse coverings are manufactured on Enterprise Drive. Natural gas compression equipment ships from Delavan Drive. Candies are made on Whitney Street.
Over on Venture Drive on the city's south side, a building left vacant by a General Motors supplier is now home to several tenants whose businesses range from thermoplastic parts production to light assembly and distribution of lawn and recreational equipment.
In the last two years, manufacturers and logistics operators have occupied a combined total of more than 1.4 million square feet of Janesville's available industrial property.
Overall, Rock County's industrial vacancy rate since 2010 has dropped from nearly 13 percent vacant to 7.3 percent vacant.
"We've made very significant progress in reducing industrial inventory," said James Otterstein, Rock County's economic development manager. "It's a good thing when you see things moving, trend lines forming, that indicate the local economy is starting to hit on all cylinders again."
Janesville experienced the most significant drop in vacant industrial space, a whopping 73 percent improvement.
"That's likely because Janesville had more surplus square footage, and we just saw more interest and activity in the market in terms of new companies acquiring space or existing companies nailing down more for expansion," Otterstein said.
Bill Mears, a principal and founding partner of Coldwell Banker Commercial McGuire Mears & Associates in Janesville, said large tracts of space left by GM suppliers are no longer empty.
Specifically, Mears noted Green-Tek's move from Edgerton to the 177,000-square-foot building on Enterprise Drive vacated by Lear Corp. Building owner Jim Grafft then used the Edgerton building Green-Tek left with his own TecumsehPower business.
Mears said developer Jeff Helgesen was successful in filling the 706,000-square-foot building left empty by LSI, another GM supplier.
"Instead of trying to fill 700,00 square feet, Jeff made significant investments and got it done as flex space for multiple tenants," Mears said.
Mears and others are quick to note, however, that there's an elephant in the room when it comes to the local industrial market. It's the GM plant itself, with more than 4.1 million square feet of vacant space.
When the plant is factored in, the county's overall industrial vacancy rate skyrockets to 20 percent.
"That property is not technically on the market, so, therefore, it's legitimate not to count it," Mears said.
Elsewhere in the county, Edgerton experienced a decrease in its available industrial space, while Evansville was flat. Beloit saw a slight increase in its vacant space.
As an example that one community's pleasure is often another's pain, Milton experienced a huge increase—230 percent—in its available space. That happened when ANGI Energy Systems left a 104,000-square-foot building on Plumb Street and took over a 215,000-square-foot facility on Delavan Drive in Janesville.
Mears and Otterstein said the overall industrial vacancy rate of 7.3 percent is nearing the point that's generally considered healthy for an optimized, efficient real estate market. An adequate inventory of available buildings is necessary to recruit new investment, they said.
Vacancy rates are similar in some ways to unemployment rates.
Many economists have long argued that an unemployment rate of roughly 3 percent to 5 percent represents full employment because there always will be a segment of the population that's unemployable.
The same theory can be applied to vacancy rates because there always will be buildings available that are functionally obsolete.
"We're getting a lot of inquiries for buildings of 100,000 square feet or more," Mears said. "Lots of people say, 'You must have tons of buildings sitting empty in Janesville,' but the reality is that no, we don't."
Office, retail space
Local brokers and economic development officials don't closely track office space vacancies, but if they did, they suspect it would be a relatively flat market.
"The office segment continues to be pretty darned soft," Mears said. "People seem to be staying put where they are, and we're not really a regional office market anyway.
"That's not to say we're aren't seeing some activity, but I wouldn't say it's through the roof."
On the retail side, Mears said the market is warming up in Janesville.
Evidence of that, he said, could be found in the recent announcements that Quaker Steak & Lube will take over the vacant Damon's Grill in Janesville and that another developer plans to open and operate a high-end tennis and athletic club.
"These are big deals for Janesville because these are outsiders who normally
wouldn't look at a market our size," Mears said. "They've done a lot of homework and decided to make significant investments here.
"Outsiders tend to look at us as a community of 60,000 people," Mears said. "We work hard, however, to tell them that we're not that. We're a regional draw for nearly 300,000 people."