WisBusiness: Business real estate cools along with economy

By Brian E. Clark

No one had to tell Richard Wilberg that the economy was beginning to cool in the second quarter.

He saw it in the soft leasing numbers at The American Center business park on Madison’s east side, where he is development director. He also saw it in the job figures released by the U.S. Department of Labor on a monthly basis.

There is a strong correlation between the two, he believes, because — simply stated — people need a place to work.

Over the past year, 10 new businesses signed deals to move into The American Center. Five of them were inked in the first quarter of 2004. In the second quarter, only one transaction was completed.

Likewise, job growth figures were strong from January through March, when 595,000 non-farm jobs were added to the U.S. economy. That figure declined slightly in the second quarter, when 514,000 new jobs were created.

By June — the third month of the second quarter — the economy had clearly begun to slow. Preliminary figures showed job growth for the month had dropped to 82,000 nationally. July numbers, also preliminary, showed further stalling with only 32,000 new positions.

“I’m always looking for statistics that mirror what we do,” said Wilberg, who loves to tinker with charts and graphs.

“Everyone says that interest rates are the key indicator because construction is spurred when it’s cheaper to borrow money,” he said. “But I haven’t seen that so much. … It seems to me that jobs are related to space. With fewer people working, there is less demand.”

Mark Winter, vice president of Grubb Ellis/Oakbrook Corp., agreed with Wilberg that business had been quiet since Memorial Day.

“But I don’t know if I can attribute it all to jobs,” he said. “Summer is often sluggish and then picks up.

“Activity has slowed, but I’ve noticed people starting to look around again. Overall, ’04 will be good.”

Rob Helm, a real estate broker with the Gialamas Co., said the downturn in the economy during the past two years had made it harder to lease buildings.

“Our business is tied to the creation of jobs,” he said. “If there is a lack of new job creation, we suffer.”

But Helm said the both the first and second quarters of this year have shown increased activity at the Gialamas Co.’s Old Sauk Trails Park on Madison’s west side.

“I wouldn’t say the second quarter fell off a lot,” he said. “It’s been a lot better than in the previous 18 to 24 months.”

Wilberg said the best year for his company was 2000, when the number of non-farm jobs in the nation climbed to more than 132.5 million that March.

Since then, the national economy shed more than 2.8 million jobs before beginning to rebound last September and adding nearly 1.5 million new positions. Wisconsin was hit hard during that same period, falling from a high of nearly 2.89 million non-farm jobs in June of 2000 to roughly 2.82 million three years later for a loss of more than 62,000 jobs. By June of this year, the Badger State economy had regained 45,000 jobs.

Wilberg said he believes the outlook for leasing space in his business park should improve in September.

“People will say it’s the summer doldrums,” he said. “Things should reverse some once school starts.”

On the national job scene, he expects to see some stimulus from the Bush administration – in large part because this is an election year.

“The Fed says this is a temporary pause,” he said. “But the markets don’t seem to be convinced.

“I think Bush will create jobs by priming the pump with transportation projects that will provide blue collar jobs and perhaps get him some votes,” he said.

“To be honest, I’m surprised that he hasn’t done it already,” he said.

Overall, he said Wilberg said he expects 2004 to be a good year for The American Center.

“We expect record transactions through the end of December due to improving demand (employment) and good values in the market place,” he said.