Category Archives: General Omaha News/Opinions

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

Omaha’s Moment in the Spotlight

Just five years ago it was unimaginable. Fifteen years it was incomprehensible. The city of Omaha is hosting both the College World Series Championship and the US Olympic Swim Trials at the same time-both events taking place before a national television audience (ESPN for CWS and NBC for Olympic Trials), both events occurring across the street from one another, and both in downtown.

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View of the CenturyLink Center from TD Ameritrade Park Omaha

Let’s look at some numbers to help materialize the significance of these events from a national perspective:

  • The 2008 Olympic Swim Trials averaged a 2.7 Nielsen Rating and 4.2 Million viewers per night.
  • The 2011 CWS averaged a 1.1 Nielsen Rating and 1.3 Million viewers per game.

In essence, an estimated 5-6 Million people will have their eyes on Omaha tonight and maybe tomorrow (Game 3 of CWS Finals if necessary). That is a magnificent opportunity to help bolster Omaha’s reputation as a great events city and to further the re-branding effort that has taken place over the last decade.

Now lets take a look locally:

  • TD Ameritrade Park will likely host a sell out championship crowd, which would be over 24,505.
  • CenturyLink Center Omaha will also likely see crowds similar to 2008 figures, which averaged 12,000/night for the Swim Trials.

In using simple math, over 36,000 spectators are expected to partake in these two events tonight. That is a crowd size that has never been seen in downtown Omaha, ever.

So soak it up Omaha, enjoy the spotlight. This is an unprecedented opportunity to showcase our city. The lights are bright, let’s make Omaha shine.

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Omaha 2035: A Shovel Ready Industrial Market

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In a recent study done my the Metropolitan Area Planning Agency (MAPA), the city of Omaha will need to double the size of its industrial market of just under 70 million square feet by the year 2035 in order to meet the increasing demand for industrial product in the 9 county metro area.

With easy access to two of the most traveled interstate arteries, Interstate 80 and Interstate 29, and its central location (2 day drive to both coasts, 1 day drive to Canada and Mexico), Omaha should be prime choice for companies looking to locate new distribution centers and manufacturers.  The only problem: it isn’t.

With a major lack of shovel ready industrial sites, Omaha is missing a major opportunity to attract new industrial users to the market.  In an article published Sunday, The Omaha World-Herald outlined a new plan to use an $835 million federal grant to provide environmental assessments on currently vacant, decrepit, and underutilized industrial sites in South Omaha.

Currently these sites offer potential users a myriad of challenges: environmental contamination, unabated industrial waste, vacant and antiquated buildings, and an overall lack of necessary utilities.  This project provides a great opportunity for Omaha to research what needs to be done to make this location a more viable prospect for industrial tenants.  Since South Omaha is located at the cusp of I-80, I-480, and I-29, this location has some serious potential to be a top choice for new to the market or relocating users.

In order for the city of Omaha to remain competitive both nationally and locally (vs. suburban sites), it must find a way to make these sites more attractive and “shovel ready.”  In doing so, hopefully one day it will reap the benefits of job growth and help bring a breath of fresh air into a once vibrant area of town.

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This is Omaha

For my first blog post I wanted to keep things simple.  Since I intend to blog about real estate in Omaha most of the time, it gives everyone a great frame of reference.  Enjoy!

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Filed under General Omaha News/Opinions