MADISON STREET BEAT– Q4/22 

Occupancy rates rose slightly on a year-over-year basis as the vacancy in the market continues its gradual trend down since early 2021. It is beginning to appear that the majority of tenants are becoming comfortable with their current space allocation and, in some instances, are seeking to expand. Limited speculative construction of new office buildings is expected to keep the market stable in the coming years.

Office property transactions in Madison saw another strong quarter to close out the year. Sales volume was slightly higher year-over-year and total volume of transactions in the last 2 quarters has now exceeded all of 2020 and the first half of 2021 combined.

While one of the most watched deals was for a life science conversion at 8402 Excelsior Drive, the largest transaction was a medical office investment by Spirit Realty, a REIT based out of Dallas, TX. The 112,000 square foot property at 2650 Novation Parkway is 100% occupied by UnityPoint Meriter and Quartz Health Solutions and sold for $19.75M. This deal represents the first significant office investment in Madison by an out-of-state buyer since the pandemic.

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.  

MADISON STREET BEAT– Q3/22 

Occupancy rates fell slightly from the previous quarter but remained higher on a year-over-year basis. Many companies continue to operate on a hybrid basis, incorporating both in-office and remote workdays.  Smart companies are changing the way they think about office space. Rather than viewing office space as an expense, they are investing in well-designed workspace to boost profits by increasing productivity, efficiency, and engagement.

After rebounding strongly in 2021, growth for the U.S. economy in 2022 has slowed due to rising inflation and geopolitical events. However, both the overall economic conditions and the commercial real estate market in Madison are stronger than national averages.

Sales volume for Madison area office properties Q3/22 was the highest since Q4/19, a signal that capital is regaining confidence in the office sector. The most notable transaction was DMB Community Bank’s acquisition of the former Baker Tilly HQ building at 10 Terrace Ct for $12M. Also of note was Compass Properties sale of 2537 Daniels St to an investor for $7.2M, 5 years after acquiring the building in 2017 for $3.3M.

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.  

MADISON STREET BEAT– Q2/22 

Occupancy rates increased slightly on a year over year basis as supply in the new office market remains limited. Q2/22 is the third consecutive quarter of positive absorption in the market, aligning with forecasted projections.

Demand for office space in the greater Madison area is higher in 2022 than it was in early 2020. Tenants looking for office space fall into several categories, including those who want to “right-size” their office footprint, those looking for healthy spaces with plenty of natural light and outdoor areas, or those  looking to upgrade to higher quality workspace.

Sales volume for Q2/22 was nearly double that of Q2/21 and in line with average pre-pandemic levels of transactions.  Larger deals are beginning to resurface in the market, though they tend to be single tenant buildings as opposed to multi-tenant.

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.  

MADISON STREET BEAT– Q1 2022 

Occupancy rates in Q1 ’22 fell slightly compared to last year, as many companies put return-to-office plans on hold due to the Omicron wave and tenants returned gradually into adjusted workspaces. Madison’s office market occupancy rates remain relatively stable and well above national averages.

Madison has now seen two consecutive quarters of positive absorption and the trend is expected to continue. This follows five consecutive quarters of negative absorption from Q3 ’20 to Q3 ’21. Transaction activity was strong in Q1, nearly returning to pre-pandemic levels of activity.  Transactions continued to be a mix of planned conversions and redevelopments as well and office investment deals.

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.  

MADISON STREET BEAT– Q4 2021 

Even with COVID-19’s Delta and Omicron variants disrupting daily lives and return-to-office plans, the Madison area office market saw occupancy rates remain stable at nearly 95%, compared to a national average of 87.6%.  Continued growth in the Madison market combined with low levels of new office inventory and speculative development to keep occupancy rates high. Leasing volume for 2021 was 20% above 2020, but 20% below 2019. 

Sales volume picked up in Q4 and was substantially higher than Q4 2020.  This followed a $48M increase in Q3.  The largest Q4 transaction was UW Credit Union’s $10M acquisition of a property at 8401 Excelsior Drive that it will use for its own office space needs.  Compass Properties acquired the former Gardner Baking Building on East Washington for just under $5M, making it the second largest office transaction of Q4.  There were a number of deals in the $1M – $3M range that were also closed before year end.   

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.  

MADISON STREET BEAT–Q2 2021 

Despite an increase in the number of employees now working from home or in a hybrid work environment, occupancy rates for office space in Madison remained just under 95% in Q2, slightly lower than the same period in 2020, but significantly better than the national average of 87.6%. With the low supply of new construction in the Madison area, office occupancy rates are predicted to stabilize over the rest of the year and into 2022.

Sales volume in 2021 has increased significantly since last year, when the world was just beginning to grapple with the coronavirus. Overall, volume remains below normal, with most transacted deals in $2-$3M range. Larger deals continued to elude the marketplace, as capital underwrites investments with more scrutiny.

Looking ahead, Dane County continues to have one of the highest vaccination rates in the country, with more than 80% of residents 12 and older having gotten at least one dose.  This should have a positive impact on the “return-to-office” market environment in terms of both occupancy and sales in the months ahead.

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.  

MADISON STREET BEAT–Q1 2021 

As business bounces back from the COVID-19 pandemic, government shutdowns and the recession, the commercial real estate market is starting to show signs of recovery. Sales volumes are gradually increasing, though not yet back to pre-pandemic levels. In Q1/21, One of Madison’s investment office deals closed in the $6 million range, while all other deals were under $2 million.  Large transactions are expected to materialize later in the year as large, national real estate firms have a record amount of money to invest that has been sitting anxiously on the sidelines.  

Occupancy rates dipped to just under 95% in Q1/21, but many in the industry are optimist that occupancy will soon return to pre-pandemic levels.  Many tenants are returning to the office, while others are delaying their return as they track the impact of the vaccine administration on potential office attendance.  Once thing is clear — after a year+ of working remotely, employees want to get back into the office. In fact, 94% of employees are ready to return to the workplace.  Vacancy rates are expected to hold steady, as a low supply of new space is anticipated. 

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.  

MADISON STREET BEAT–Q4 2020 

Like most business segments, 2020 was a volatile year for commercial real estate.  The year started with high optimism, but the COVID 19 pandemic had an uneven impact on demand for CRE space with greater effects on office and retail with less or no effect on multifamily and industrial. 

Occupancy rates were increasing at the start of 2020 but ended at the same level as 2019.  While a growing number of businesses began bringing employees back to the office in Q4, others are using work remote or hybrid models until they can determine how to best support employees’ wellbeing and address COVID and Covid-19 vaccine concerns.  A low quantity of new office supply contributed to occupancy rates that were kept relatively stable.

Sales volume continues to remain low in Q4 2020 as the disconnect in the market between buyers and sellers persists. Buyers continue to search for deals, being cautious not to overpay, while sellers are reluctant to sell, as the pandemic’s impact to commercial real estate is yet to materialize. Notably, Compass Properties’ sale of High Point Office Center for $2.425M in October ’20 was Madison’s top office transaction of Q3/20 and third largest office sale of the year.

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.  

MADISON STREET BEAT–Q3 2020: 

Strong demand for office space in early 2020 leveled off due to the pandemic, but occupancy rates remain slightly higher for Q3/2020 vs. Q3/2019, despite a negative 22.2K SF net space absorption in the market. The forecast for Madison’s office occupancy in the immediate future remains relatively stable as there are few new office projects coming to market. 

Office space tenants remain in a “wait and see” holding pattern as they evaluate plans for future office space needs.  While an increase in work-from-home practices will impact occupancy rates for office buildings, this will likely be offset by factors including economic growth, population growth, and office-using penetration.   In Madison and across the nation, it’s expected that demand for the office will continue to grow over the next decade, despite the short-term impacts of the COVID-19 pandemic.

Sales volume for Madison’s office market in Q3/2020 has dipped dramatically and is currently less than 20 percent of what it was in Q3/2019.  Low inventory combined with cautious investors and lenders has led to a limited number of transactions. Transactions may pick up in Q4 as owners and investors try to complete deals before year-end, but it will almost certainly remain well below normal levels.

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.  

MADISON STREET BEAT–Q1 & Q2 2020:   The Madison area experienced strong demand for office space in early 2020, driven by significant growth in office using employment with demand for space outpacing delivery of new projects.   Demand tapered off in Q2 and remains uncertain after months of a government-mandated shutdown. With the ongoing pandemic disruption, it is likely that these conditions will not only continue but accelerate as employers and landlords adjust to the new reality.

For the  immediate future, we believe the new workplace normal will be a hybrid of in-office and remote work.  Eventually, many midsize to larger companies will look to reduce workplace density by expanding office space and refitting existing spaces to respect social distancing. That involves things such as  smaller conference rooms,  more space in open office areas and designated pathways so people move in just one direction.

After a strong year of investment activity in 2019, Madison office sales volume has slowed down considerably during the first 2 quarters of 2020 and has almost come to a complete halt in Q2.  COVID-19 has created a climate of uncertainty and the majority of decision making with regards to CRE investing has largely been put on hold.   While all markets have been impacted by the pandemic, tech-led companies are fairing the best and may be at the head of the line when The U.S. economy recovers, though its uncertain when and at what pace that will occur.

Madison Street Beat  is a snapshot of key metrics for the Madison area office space market developed by Compass Properties. Information contained in this report is general with regard to the subject matter and should not be construed as a recommendation to make any real estate investments or any other financial transactions.  Neither Compass Properties nor any of its employees and agencies warrant the accuracy or assume any liability for information contained in this report.