Industrial c Nebraska

Land sales to provide some relief in tight Omaha industrial market

Land sales to provide some relief in tight Omaha industrial market?,ph01

How tight is the industrial market in Omaha? Vacancy rates here have been hovering around 3 percent since 2014. And Colliers international reported that in the second quarter of the year, the industrial vacancy rate in the Omaha market stood at a low 3.3 percent.

That’s why White Lotus Group’s I-80 Commerce Park is such a welcome addition to Omaha.

The park, an impressive 140 acres, is being marketed by Omaha’s Investors Realty. Industrial lots of 20 to 30 acres are available here, something that could provide more opportunities for industrial development in Omaha’s tight market.

“Industrial occupancy is very high today,” said Tim Kerrigan, vice president and broker with Investors Realty. “It is to the point where industrial users are geting locked in. It is hard to do transactions in this sector because there is no inventory.”

The I-80 Commerce Park development should help with this. So should the influx of recent land sales.

Kerrigan said that land sales were strong in 2015 and 2016, but that activity seems to be even stronger so far in 2017. Investors Realty tracked 222 total land sales with a value of $303.1 million in the greater Omaha market in 2015 and 2016.

Those were two busy years. In 2013 and 2014, Investors Realty tracked just 159 total land sales with a combined value of $229.4 million.

Of the 222 total land sales in 2015 and 2016, 36 sales were of 20 acres or more.

Why has the industrial market in Omaha been so tight for so long? Kerrigan points to the limited amount of new industrial construction here.

“Business has been good lately,” Kerrigan said. “But I still think the low vacancy rate is more of a factor of limited new construction. And limited new construction is a factor of limited land opportunities and the fact that construction costs have been rising. Whatever has been built here in the last several years has been leased. But it’s hard for a developer to convince themselves that the rents they are going to get by building new will be higher than the rents they have been getting in older space.”

This cautiousness on the part of developers is not surprising, Kerrigan said. Everyone expects land to cost more in the near future. They expect it to cost more to develop new industrial space. Construction costs are expected to rise.

But when it comes to rents? Developers often struggle to imagine tenants paying higher rents than they are paying today.

Problem is, if the costs of building and developing new industrial space are rising, rents must rise, too, or developers won’t make any money.

“You can’t project all those future higher costs but also project yesterday’s lower rents,” Kerrigan said. “You have to project higher rents, too.”

Kerrigan doesn’t expect vacancies to shoot up anytime soon in Omaha’s industrial market. The demand for this property type is simply too high here today.

“There is such a pent-up demand today for large parcels of land,” Kerrigan said. “The market recognizes that we need more land inventory and more building inventory today. We all believe that there is pent-up demand in this market.”