Flat Results but Omaha’s Office Market has Strong Potential
Omaha’s office market was busy in 2018, and saw several larger transactions. However, it was off Omaha’s usual pace. The year started with strong activity, but then slowed. Brokers reported a lack of velocity in the summer, and that carried into fall. Much of the new office product had come on line or was filled, creating a lack of space leading to some lack of activity. Activity picked up late in the year and several office tenants were active in the market at year-end. This tenant activity, combined with three new building starts in the fourth quarter, suggest 2019 will be strong.
Omaha typically absorbs 250,000 sq. ft. of office space annually. According to CoStar, the first half of 2018 saw nearly 340,000 sq. ft. of positive absorption. But the year ended with only 44,000 sq. ft. of positive absorption. Nearly 200,000 sq. ft. of that loss is attributable to two office closures, Treehouse Foods and Strategic Health Solutions. Both of those spaces are now vacant and are offered on the market for sublease. CoStar shows the HDR headquarters building in Aksarben as under construction, but it was technically delivered before year end, boosting absorption by approximately 200,000 sq. ft.
2018 saw 25 lease transactions in excess of 10,000 sq. ft. The average of those was 25,000 sq. ft. Lindsay Manufacturing, Flywheel and Aetna Insurance were the three largest lease transactions and accounted for 181,000 sq. ft.
The year also saw the completion of several top-quality office buildings. West Dodge Hills Building I at 180th and Dodge, Sterling Ridge Building E at 132nd and Pacific, the Core Bank building at 180th and Dodge and the Alvine & Associates building at 1201 Cass Street brought 265,000 sq. ft. to the market. Those buildings only have approximately 25,000 sq. ft. of office space left to lease.
There are currently six high quality office buildings now under construction: The Baxter Building, Pacific Springs Center II, Aksarben Zone 5, West Dodge Hills Building II at 180th and Dodge, River’s Edge in Council Bluffs and LaVista City Center, which will bring over 425,000 sq. ft. of space to the market and approximately 320,000 sq. ft. of spec space, providing some much-needed breathing room for a tight Class A market.
Aside from these larger buildings and leases the market has been steadily working through some smaller spaces. A user in need of a 2,500 to 3,000 sq. ft. space in west and southwest Omaha is finding that harder to locate than in the past. With an economy that has been strong for some time, overall business is doing well, spurring new users to the market and keeping existing users in place. This stronger demand is not easy to supply because new construction is not well suited for smaller spaces. This is good news for owners with small suites in that segment as it has felt commoditized over the past few years. If this trend continues to tighten we will see rental increases follow.
The Investors Realty Office Team is tracking 55 notable tenants active in the market seeking a total of approximately 900,000 sq. ft. as of year end. After removing the largest prospect, the average size tenant seeking space in the market is 33,000 sq. ft. Some of these tenants will be new to the market, but most are existing Omaha companies that need more space to accommodate their growth plans.
Look for our full Office Market Report in Market Reports under the News & Reports menu.
By Tim Kerrigan, CCIM, SIOR and J.P. Raynor, CCIM, JD
This article appeared in our company newsletter in March of 2019. Please click here to download the entire newsletter.