CRE c Nebraska

LinkedIn, HDR prove it: Omaha still a big draw in the Midwest

LinkedIn, HDR prove it: Omaha still a big draw in the MIdwest,ph01
OJB Landscape last year released its first concept images for a massive redevelopment of downtown Omaha's riverfront, another plus for this busy city.

The real estate pros working the Omaha market all agree: This is an exciting time to be in this business in this city.

Why? Omaha’s commercial real estate market continues to thrive, as it has for the last several years. New developments are popping up not only in the heart of the city but in its suburbs, too. And demand for new office space, industrial facilities and multifamily units doesn’t seem to be on the wane.

The best news of all? Brokers here say that Omaha’s commercial real estate market is showing no signs of a slowdown anytime soon.

Jon Blumenthal, partner with Omaha law firm Baird Holm, said that those working in commercial real estate in Omaha are fortunate in that the entire market is doing well. It’s not just downtown, for instance, that is seeing plenty of commercial activity. The surrounding neighborhoods and suburbs are doing well today, too, Blumenthal said.

What accounts for this? Blumenthal pointed to the strong roster of corporations who have set up shop in Omaha, including many Fortune 500 companies. He also said that the area’s philanthropic organizations have worked hard to make Omaha an attractive place to live and work.

Then there is the developer community. Blumenthal said that the developers working Omaha truly understand the market. They don’t overbuild.

“We are steady,” Blumenthal said. “We might not get the big highs that they get in the bigger markets. But that means that our lows are also not quite as low. I’ll take the steady growth over big booms any day. Our developers have built steadily, but they have not overbuilt.”

Developers have found Omaha to be an attractive market today, with the city and its surrounding areas home to new multifamily, office and mixed-use projects. And many of these projects are big ones, developments with the potential bring even more new businesses and companies to the area.

The West Farm Development is a good example. Located southwest of 144th Street and West Dodge Road, this development calls for 2,100 residential homes and nearly 2.3 million square feet of office, retail and entertainment space.

Noddle Companies, the developer behind West Farm, says that the development will take at least 15 years to finish. And by the time all that work is done? West Farm will cover 500 acres.

Noddle Companies has played a major role, of course, in the commercial roll that Omaha is now on. The company developed the mixed-use Aksarben Village development in Omaha, too. That development has been a rousing success, with restaurants, retailers, offices, hotels and entertainment options all filling the development

What’s most impressive about Omaha’s market today, though, is that the big developments such as West Farm and Aksarben Village are far from the only bright spots. All commercial sectors are still showing signs of growth in Omaha. Consider the industrial market here. Colliers International reported that the Omaha industrial market ended 2018 with a low vacancy rate of 3.4 percent. That rate has increased a bit – it is 70 basis points higher than where it stood at the beginning of 2018 – but it is still far below the national industrial vacancy rate of 4.9 percent.

Industrial is strong throughout the Midwest, and Omaha proved to be no exception in 2018. In the fourth quarter of the year, 117,438 square feet of industrial space was absorbed, according to Colliers. For the year, 203,170 square feet of industrial space was absorbed in the Omaha market, according to the firm.

At the same time, developers continued to add space to the market. Colliers reported that in 2018 developers added 708,262 square feet of industrial space to the Omaha market. Colliers also said that average industrial asking rents increased by 20 cents in the fourth quarter when compared to the same quarter a year earlier. As of the end of 2018, the average industrial rent stood at $5.80 a square foot.

Don’t expect the industrial market to slow anytime soon. Colliers says there is more than 1 million square feet under construction, the majority of this in busy West Sarpy County. Some big projects include Omaha Box Company’s 335,000-square-foot facility under construction southwest of Highway 50 and Schram Road near Springfield, Nebraska; Warren Distribution’s expansion of its Council Bluffs, Iowa, facility by 211,000 square feet; and XTL Inc.’s 143,450-square-foot facility being built at the northwest corner of Veterans Memorial Highway and South 24th Street.

Investors Realty has plenty of good industrial news to report, too. The company, in its latest research, says that it is tracking more than 2.5 million square feet of Omaha-area industrial construction projects in the pipeline.

This isn’t to say that Omaha’s industrial market doesn’t face challenges. Investors Realty says that the market still lacks shovel-ready industrial sites. Large tracts of land with utilities are tough for companies to find. Investors Realty says that the I-80 Logistics Hub, a 140-acre industrial park located off of 132nd Street and Cornhusker Road, should satisfy some of this demand, with grading and infrastructure work on this project slated to begin in the spring. Once completed, the I-80 Logistics Hub will be the largest new industrial park development in the Omaha area in several years, Investors Realty said.

Industrial might be a standout, but other sectors are performing well, too. The office sector, for instance, ended 2018 on a strong note, according to research from Colliers. The sector’s vacancy rate stood at 7.7 percent at the end of the year, 100 basis points lower than where it came in at the end of 2017. The year also saw net absorption of 405,346 square feet, a big boost from the 200,000 square feet of office absorption the Omaha market saw in 2017.

And developers haven’t been shy about adding new office space to the market. Colliers reported that more than 500,000 square feet of office construction was delivered to the Omaha market in 2018, while another 500,000 square feet is currently in the construction pipeline.

Compare that to 2017: In that year, only 63,000 square feet of new office construction was delivered to the Omaha market. Last year’s new office construction was the highest in the Omaha market since 2013, according to Colliers.

One project that made a big impact last year was HDR’s 250,000-square-foot Class-A headquarters office building in the Aksarben Village development. Employees moved into this new office space in December of 2018. To prepare for the new headquarters, HDR sold three buildings at 84th Street and West Dodge Road that totaled 208,195 square feet to Children’s Hospital and Medical Center. HDR also vacated more than 40,000 square feet in an office property in the Westroads area.

HDR’s new headquarters space means there is now more than 1 million square feet of office space in the Aksarben Village development.

Developers are so confident in the office sector here, that they are building spec properties. A good example is Cizek Construction, which is developing a 115,000-square-foot spec office project in West Dodge Hills on the southwest side of 180th Street and West Dodge Road, according to Colliers.

Lindsay Banks, associate broker with Omaha’s The Lerner Company, said that the market’s steady CRE activity is nothing new.

“Omaha has always been very consistent,” Banks said. “Even during the downturn, our commercial real estate activity remained steady. Because of this, Omaha is seen as a relatively safe place to invest. The large corporate users that we have in this city are really helping the Omaha economy, and that is helping the commercial real estate market, too.”

Corporations continue to target Omaha for new offices. A good example? Banks pointed to social media company LinkedIn, which plans to open a 200,000-square-foot, two-building office complex in Omaha by 2021. The new office will be located at Pacific Street and 132nd Street in Omaha’s Sterling Ridge mixed-use development.

LinkedIn, when making its announcement, said that the new office will allow the company to double its presence in Omaha. Each of the two office buildings that will serve as the new Omaha headquarters will be five stories and 100,000 square feet.

Banks said that corporations like Omaha because of the city’s business-friendly environment, affordability and, maybe most important of all, it’s strong and reliable labor force.

“The corporate users know that they can hire top talent if they move here,” Banks said.

Investors like Omaha, too, largely because of the solid profits they can make here.

“The yields are becoming so compressed on the coasts and even sometimes in our larger Midwest markets. So investors are looking at investing in some of the secondary and tertiary markets in the Midwest, like Omaha,” Banks said. “There is less competition here and they can still get those steady returns.”

Omaha’s downtown core is especially strong today, Banks said. Multifamily buildings are rising from the core of the city while office users are increasingly choosing to fill space in downtown Omaha. New restuarants and retailers are opening in the city’s core, too, all of which is combining to bring new excitement to downtown Omaha.

The future looks even brighter for downtown Omaha, too. Banks said that during the next five years, the city’s downtown will take on a new look. The City of Omaha Parks and Recreation department is revamping the system of parks downtown, redeveloping 90 acres and a large swath of land along the Missouri River.

“This will make it even easier to attract people to the city,” Banks said. “It will make it easier to attract corporations that want to relocate downtown.”