Category Archives: Commercial Real Estate

Why Industrial Landlords in Omaha Will Soon Have Negotiating Leverage

The Omaha industrial market, which contains a total inventory of roughly 67.5 million square feet, posted a tight vacancy rate of 5.1 percent at the end of 2012, according to commercial real estate research firm Xceligent Inc. For the year, about 652,000 square feet of space was absorbed, or about 1 percent of the market.

Industrial vacancy rates continue to decline.

Industrial vacancy rates continue to decline.

Overall, 2012 was a strong year with an estimated 142 new leasing transactions completed. Unlike 2011, however, in which eight major deals in excess of 100,000 square feet dominated the industrial market reports, none of the deals in 2012 were blockbuster.

In fact, only three transactions were in excess of 50,000 square feet. What does this mean? A lot of midsized deals occurred. For the first time in a while, those vacant spaces ranging from 2,000 to 10,000 square feet that have accounted for a glut of excess space in recent years are getting leased.

More significantly, the mid-sized deals indicate the growth of both new and local businesses expanding their presence in the Omaha industrial market.

Meanwhile, speculative or new construction is at a standstill. Almost all of the new construction in the market has either taken the form of build-to-suit or owner-occupied space, or is mostly preleased space.

Flat rents stifle construction

If historical tendencies hold, a vacancy rate near 5 percent would signify that the time is nearing to add inventory to the market. But for several reasons, that isn’t happening.

Since Xceligent began tracking the Omaha market in late 2010, rents have remained relatively unchanged while the market as a whole has positively absorbed around 1.5 million square feet of inventory.

Such a trend defies logic. How can a market absorb between two and three percent of its overall inventory and not see at least a slight uptick in asking rents?

Regardless of the answer, the lack of an escalation in rental rates, combined with a rise in construction costs and a lack of well-located industrial land, is making speculative construction difficult not only to finance, but also to justify.

Despite unchanged rents, landlords are still expected to invest significant dollars to compete for the best tenants. Rent abatement, generous tenant improvements, and attractive lease rates are all part of the equation. Even though market conditions imply that negotiation power should be on the landlord’s side of the table, it isn’t.

Historically, industrial owners in Omaha have preferred the long-term stability of their assets as opposed to a quick return on investment. Although a landlord may want to push for the extra 25 cents per square foot in rent, doing what it takes to keep a long-term, stable tenant takes precedence. It is these conservative business decisions that make Omaha such a stable business environment.

Something has to give

Assuming business expansion in Omaha continues at its current pace, at some point inventory will have to be added to the market. Otherwise, asking rents will have to increase. One of these factors has to give. It is simple economics; landlords won’t need to entice tenants with free rent or other leasing incentives. Space will fill up.

Tenant rep brokers are already griping about the lack of quality product in the market because much of it has been leased. My gut tells me that the next few years will be a good time to be a landlord in Omaha.

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Filed under Commercial Real Estate, General Omaha News/Opinions, Xceligent

Part 4-Reviving Kimball’s Legacy at 15th and Dodge

An architect’s rendering of the redeveloped Old Federal Building (courtesy of the Omaha World-Herald and Alley Poyner Macchietto)

It was 1878 when a young Thomas Kimball and his family moved to the banks of the muddy Missouri River to the bustling railroad town of Omaha, Nebraska.  At the time, his current neighbors likely could not fathom the role that the young 16-year-old Kimball would have in shaping the architectural landscape of Omaha.  The future graduate of MIT aided in the creation of local icons such as the Hotel Fontenelle, the Medical Arts Building, Omaha Public Library, Burlington Station, St. Cecilia Cathedral, and campus of the Trans-Mississippi and International Exposition.  In all, he was responsible for the design of over 25 buildings across town, few of which are still in existence today.  Built in 1933, the Old Federal Building on 15th and Dodge Streets remains one of the few existing Omaha landmarks designed by Kimball.

Constructed as a part of Franklin Delano Roosevelt’s New Deal, the 12 story 105,000 square foot building was home to several federal agencies, including, the US Weather Bureau, the Internal Revenue Services, US Department of Agriculture, and most recently the Army Corps of Engineers.  For the past few years though, the once bustling legacy of Kimball has been relegated the status of just another vacant building in Downtown Omaha.

In December of 2011 that changed when First OFB, a joint venture between Iowa based Nelson Development and Rosemont, Illinois’ First Hospitality Group acquired the property for $2.375 million.  The group intends to bring the property to new life with a 152 room Residence Inn by Marriott.

The approximately $23 million redevelopment will create an estimated 50 full-time and 25 part-time hospitality jobs and is slated to open in the Spring of 2013.  The hotel will feature amenities such as Wi-Fi, a fitness center, meeting space, and will serve as a great compliment to the sculpture park located just west of the property.

The project will help meet the demands of the currently undeserved Downtown Omaha hotel market.  With just under 2,400 rooms currently, the 152 rooms created by this project is among the over 600 units either planned or under construction in downtown.  Worth noting, the building is located in an area not widely utilized by tourists.  Most other projects are taking place in either the Old Market or North Downtown neighborhoods.  This project speaks volumes of the level of confidence out-of-town developers and investors are seeing in Downtown’s core.  Additionally, the hotel will greatly serve neighboring corporate giants including First National Bank, Union Pacific, and Woodman of the World.

Currently under construction, it will be exciting to see another great piece of Omaha’s history saved.  With the proud legacy of one of Omaha’s great architects at stake, the hotel project will be a wonderful reminder of the many contributions made by Thomas Kimball to the Omaha landscape.

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Filed under Building Omaha: Downtown Development Top 10, Commercial Real Estate

Marquette Real Estate Strategies Conference 2012

In September of 2012, the Marquette University College of Business celebrated two key events: the 10th year anniversary of the Real Estate Program and its first ever Real Estate Strategies Conference.  Dr. Mark Eppli, Bell Chair in Real Estate and Interim Dean of the College of Business and the Center for Real Estate had the distinct pleasure of hosting Thomas McDonald, former Chief Strategic Officer at Equity International.  The approximately hour and a half event featured a keynote presentation from Mr. McDonald, a fireside chat with Dr. Eppli, and a celebration of the 10th birthday of the Center.

I had a chance to watch the videos in their entirety last night, and felt they would be worth sharing.  Enjoy.

Marquette 2012 Real Estate Strategies Conference Keynote Thomas McDonald

Fireside Chat with Dr. Mark Eppli: Marquette Real Estate Strategies Conference 2012

Celebration: 10 years of Real Estate Education and Dr. Mark Eppli at Marquette University

-Videos courtesy of the Marquette Center for Real Estate.

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Filed under Commercial Real Estate, Marquette University Center for Real Estate

Xceligent: Market Trends Report is out

The latest Market Trends by Xceligent, Inc. is out.  Like I said in my last posting, I’m not liking a lot of what I’m seeing.  To view the full report, click the link below:

Xceligent 2012 Q2 Industrial

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Filed under Commercial Real Estate, Xceligent: Omaha Market Updates

Omaha Industrial Market Q2 Report

Xceligent, Inc. recently released its Q2 Omaha Industrial Market Report and the review is mixed on my end.  After what seemed like a busy and active start to the year, both leasing and sale activity in the Omaha Industrial Market have slowed significantly.  However, there was some good news.  Here are a few highlights:

  • The overall market vacancy rate is down slightly from 5.6% to 5.5%
  • the South Central submarket, the largest in the Omaha metro, is down to a 3.2% vacancy rate.
  • The market absorbed 47,900 SF
  • Average Direct Lease Rates are up slightly

And now for the bad news:

  • Only 32 industrial deals took place last quarter
  • Just 3 deals larger than 20,000 SF took place
  • Flex space in the South Central submarket is 9.4% vacant
  • Additionally, only 1 property in the Omaha metro has over 100,000 square feet available, the Omaha Works Industrial Building (formerly Connectivity Solutions).

Over all, we’re in a good place right now, but it still feels like it could be a while before new inventory is added to the market: lease rates are still too low and landlords are still having to give rental concessions to renew existing tenants or bring in new ones.  But perspective is important, and in comparison to other markets, we are in great shape.

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Filed under Commercial Real Estate, Xceligent: Omaha Market Updates