Small but mighty is a succinct way to describe Madison, Wisconsin’s office investment market which totals approximately 30 million square feet of office inventory, compared to Chicago’s 234.5 million square feet. And if you look beyond the size, it’s one of the Midwest’s strongest markets due to its diverse economy and insulated drivers such as government and education.
But a perhaps unexpected growing force of Madison’s economy is the technology sector, which, according to JLL’s U.S. Technology Outlook, received $39 million in venture capital funding from Q3 2015 to Q2 2016. The University of Wisconsin-Madison serves as the market’s tech anchor: the well-known research hub is particularly renowned for agricultural technology and also fosters a tech-workforce. More than 32 percent of the city’s population holds a bachelor’s degree or higher.
In addition, a strong cross-section of established tech companies such as Epic Systems Corporation and Raven Software hold significant presence in the market. Startups have found success via private and public sector entities due to Wisconsin’s growth-friendly legislation, which includes a 25 percent tax credit to local angel investors who support new startups.
“Investors are drawn to the tech sector stability provided by the university, combined with a business environment that encourages growth and collaboration,” says Jim Postweiler, Managing Director with JLL’s Capital Markets. “The city also offers a high quality of life – it is a young city with growing commercial development, plenty of outdoor space and renters are finding good value here.”
Although considered a tertiary market, investors are also seeing the value in Madison as it’s a lower cost market in terms of real estate space, asset ownership and living expenses, compared to other Midwest cities such as Chicago, Minneapolis and Indianapolis. Many office owners are local high net worth individuals or ownership has been consolidated to private equity companies but new players are starting to get active. For example, Canada-based Artis Real Estate Investment Trust recently acquired an office portfolio with a significant number of tech tenants.
Tech tenant interest in Madison further adds to the market’s resilience – and bolsters the case of why investors should explore Madison. The market’s overall office vacancy rate sits at 9.3 percent but some submarkets have seen vacancy rates fall as low as 3.0 to 4.0 percent for Class A space.
“For investors willing to take the time to learn the benefits of Madison’s diversified economic base, including its strong tech presence, they will find attractive risk-adjusted returns and high-quality office product,” notes Peter Harwood, Executive Vice President with JLL’s Capital Markets.