WisBusiness: Epic’s departure could lead to glut of office space

By Brian E. Clark

A soft Madison office market is going to get even softer when Epic Systems leaves behind nearly 400,000 square feet of space this fall to move into its new Verona headquarters.

And while Madison’s economy remains strong, it may take five years to fill up the offices being vacated by the software giant, according to Neil Halleen, a vice president and partner at Opitz Realty. Halleen said Epic’s relocation to Verona reminds him of when Alliant moved from its downtown headquarters to Madison’s east side.

“It’s a somewhat different situation, but it’s been about three years and whole floors of that structure are still empty,” he said.

Mark Winter, vice president at Grubb Ellis/Oakbrook Corp., said he believes Epic’s departure will encourage existing landlords to be more aggressive in keeping their current tenants. Similarly, he said tenants may try to negotiate better deals.

Andy Giesler, an Epic spokesman, said the move to Verona will take several months. He said he was not certain when the company would move out of its Tokay Boulevard headquarters.

Halleen, who has been in the real estate business for more than 30 years, said this is the softest office space market he’s seen during his career.

He said the impending departure of Capital Indemnity and Humana from their offices near Segoe Road and University Avenue will add to the space glut.

“That will only make things softer,” he said.

Halleen said low interest rates in recent years led to increased construction by developers.

“But now that interest rates are on the rise again, you won’t see many speculative buildings going up,” he said.

“It’s just too costly to hold onto vacant space,” he said. “And there is already a awful lot of space on the market.”

Robert Helm, a broker with the Gialamas Company, agreed and said that although none of the properties he represents will be affected by Epic’s departure, “it’s pretty obvious that dumping almost 400,000 square feet of office space will have a big impact.

“But it won’t change demand, which has pretty much been in balance for the past year,” he said. “We had excess from 2002 to 2004, but that is being absorbed now. Vacancy rates here are around 9 percent, but that’s a lot better than Chicago, where it’s 15 percent.”

And Richard Wilberg, development director for The American Center of Madison’s east side, said Epic’s move will create a “huge vacancy” for Madison’s west side.

“But I don’t know how it will affect us over here,” he said. “It may not have any impact.”

On the flip side, the arrival of Epic and its 1,600 employees to its new 500,000-square-foot campus will mean big changes for Verona.

While most of Epic’s workers will commute, their presence will affect everything from restaurants to health clubs to gas stations and traffic. In other words, Verona will boom.

Halleen said Epic’s current headquarters on Tokay Boulevard may be difficult to rent because it will require extensive renovation.

“Open space is now popular for businesses,” he said. “And Epic’s building will require significant modification because of the way they set it up in small offices for programmers.

“I had a client look at that building recently,” he said. “It was a great location, but when they realized what they would have to do, they said ‘oh my gosh.'”