COVER STORY, APRIL 2005

GAINING GROUND
Omaha’s continued economic growth fuels development in all four property types.
Lindsey Walker

Riverfront Place is being developed on the bank of the Missouri River in downtown Omaha, Nebraska. The project’s first phase is scheduled for completion in summer 2006.

Omaha’s pro-business climate, highly educated and productive workers, renowned public education system, low-cost energy, sophisticated telecommunications capacity and general high quality of life could entice any company to locate to the area, which boasts an eight county MSA population of more than 800,000. But, to ensure that the creation of jobs continues, the Greater Omaha Chamber of Commerce has implemented several goals and strategies. From recruiting companies to strengthening business retention and expansion to building interlocking partnerships with the region’s economic development organizations, the Chamber is taking major steps to generate both jobs and revenue for Omaha. And the plan appears to be working.

The Target Omaha initiative, a 10-year program that was completed in 2003, invested a total of $12 million in economic development and played a leading role in more than $3 billion in new building projects throughout Omaha’s metropolitan area, according to Rod Moseman, vice president of economic development for the Greater Omaha Chamber of Commerce.

“These projects have been credited with creating more than 60,000 net new jobs, resulting in billions of dollars in new payrolls and capital investment in greater Omaha,” he says.

Projects impacted by the Target Omaha campaign include First National Tower, Qwest Center Omaha, The Gallup Organization’s Gallup University campus and the Union Pacific Center.

At 633 feet, First National Tower is taller than any building in Kansas City, Des Moines or St. Louis. The $200 million project has more than 1 million square feet and was completed in the summer of 2002.

Omaha, Nebraska.

Construction of the $81 million Gallup University riverfront campus finished in October 2003. The company’s R&D and headquarters operations center brings as many as 5,000 top-level executives from around the world to Omaha each year.

The Union Pacific’s new 19-story, 1.2 million-square-foot headquarters opened last June. The $350 million investment also includes renovation and upgrade of the Harriman National Dispatch Center. The establishment of the headquarters in Omaha resulted in the transfer of more than 1,000 employees from St. Louis.

Based on Target Omaha’s success, the Chamber has initiated another campaign called the Greater Omaha Economic Development Partnership (GO!). To further intensify economic development, recruitment and retention efforts in the area, the initiative hopes to raise $20 million during a 5-year period.

“Progressive cities throughout the world recognize the important advantages that accrue to cities that are successful in attracting new businesses to them,” says Moseman. “That is why they invest significant amounts of funding and labor resources to capture the attention of business owners, corporate officers, commercial real estate professionals and other consultants.”

One of the major industries that Omaha is proactively recruiting is defense and aerospace contracting due to a recent expansion of both space and defense missions at U.S. Strategic Command, which is located in the region.

“A couple of years ago, the government moved several functions of Space Command from Colorado Springs to join Strategic Command at Offutt Air Force Base in Bellevue, Nebraska, Omaha’s suburb to the south,” says Trenton Magid, president of Omaha-based Coldwell Banker Commercial World Group. “The result has been several major office building projects in the last year with more expected.”

The Chamber has also identified biomedical informatics, infill retail development, suppliers to large Omaha-headquartered companies, transportation and distribution, regional or divisional headquarters of large U.S. companies, value-added agriculture, and selected manufacturing sectors as target industry groups.

“All businesses that complement greater Omaha’s existing business environment and that can provide significant new jobs and investment are attractive to us,” Moseman says.

Omaha Office Vacancy by Submarket Source: The Lund Company

Legislative Bill 546 has been introduced to enact the Nebraska Opportunities Zone Act to address business expansion, economic development, job creation and education-business partnerships within the I-80 corridor across Nebraska. The bill would create the Nebraska Innovation Zone Commission as the I-80 corridor opportunity zone commission for eastern Nebraska between Omaha and Lincoln.

Destination Midtown represents an innovative partnership of public and private interests, including major businesses and institutions — such as Mutual of Omaha and the University of Nebraska Medical Center, neighborhood organizations and city government — to return Omaha’s Midtown District to prominence and make it a destination of choice within the city. The area is bound by Cuming Street, Center Street, 24th Street and Saddle Creek Road, an area that includes 28,000 residents, 43,000 daytime workers, 13,000 housing units, 30 historical landmarks, 22 churches, 16 schools and seven parks. The vision for the area calls for the establishment of distinctive business districts, vibrant neighborhoods and a focus on green space. Destination Midtown is considered a model for future neighborhood revitalization in Omaha.

The North Downtown Study, sponsored by the Greater Omaha Chamber of Commerce and the City of Omaha and conducted by Omaha-based architectural and engineering firm HDR, will identify the potential for a major residential, shopping and entertainment area located between Interstate 480 to the south, Creighton University’s planned expansion to the west, and the riverfront development and Qwest Center Omaha property to the east. Results of the study are expected later this spring.

Other projects include Sorensen Plaza, a brownfield redevelopment; Papillion Promenade, a RED Development and The Lerner Company retail project; new Northrop Grumman and Lockheed Martin offices; Riverfront Place, a major condominium project on the banks of the Missouri River; and the $90 million Holland Performing Arts Center, which will be completed later this year.

“We are fortunate that significant development is taking place throughout greater Omaha,” Moseman says. “But certainly, the most visible development has occurred during the past few years in downtown, accounting for nearly $2 billion of the $3 billion in recent development in our area.”

RETAIL

According to Magid, Omaha’s retail sector, which boasts a 95 percent occupancy rate, is the area’s strongest market. Developers such as Scottsdale, Arizona, and Kansas City, Missouri-based RED Development, Omaha-based The Lerner Company, Omaha-based Cormac Company and Omaha-based Noddle Companies continue to dominate Omaha’s retail development. Retail construction continues at a healthy pace, with most development concentrated on the city’s western side.

“There are a number of open-air centers that have recently opened or are in the development stages, many in West Omaha,” says John Bacon, director of marketing and communications for RED Development.

One such development is Village Pointe, a 600,000-square-foot upscale lifestyle center located at 168th Street and West Dodge Road. When the prairie-style, open-air development opened last May, it brought 20 new retailers and restaurants to the Omaha market, including Coldwater Creek, Z Gallerie, White House/Black Market and Kona Grill. Quantum Quality Real Estate and RED Development developed the project as a joint venture.

“Village Pointe is shifting retail growth further west where the higher income and desirable demographics continue to trend,” Bacon says.

Another significant development, Papillion Promenade, is underway south of Omaha in Sarpy County — the fastest-growing county in Nebraska and Western Iowa. The nearly 900,000-square-foot super-regional hybrid center will combine specialty retail, dining, grocery, department stores and service providers in one location when it opens in fall 2006.

“Retailers are starting to realize the desirable demographics and increasing population of South Omaha/Sarpy County,” Bacon says.

Situated at the intersection of 72nd Street and Highway 370, Papillion Promenade’s location will take advantage of the best east/west road (Highway 370) in the area and the best north/south road (72nd Street) in metropolitan Omaha. Papillion’s master plan shows that the majority of employment growth along the Highway 370 corridor and most of the residential build-out is within a 3-mile radius, and the trade area has more than 200,000 residents. Yet, this booming region is underserved by retail options.

“Currently, the area is underserved by retail offerings and will become increasingly underdeveloped as the market expands,” Bacon says. “The trade area lacks a major shopping center with a regional draw, and many of the national, regional and local retailers lack representation in the area.”

The official groundbreaking for Papillion Promenade is next month.

Besides open-air centers, Omaha’s retail market is also seeing increased development of strip centers.

“We’re seeing a lot of strip center development in growing areas of the city,” says Richard Secor Jr., senior vice president with The Lund Company. “What’s unique to Omaha is that most of the newer strips that are being developed have character to them. They take on a lot of the characteristics of some of the lifestyle-type centers.”

Bear Properties’ The Shops of Legacy, which is located at the southwest corner of 168th Street and West Center Road, is an example if this new type of strip development. The 75,000-square-foot center was recently completed and most tenants are open. Lockwood Development’s 37,000-square-foot Legacy Village, which recently opened at the southwest corner of 175th Street and West Center Road, and the 140,000-square-foot Tivoli, which is being developed by Slusky Hoich at the northwest corner of 175th Street and West Center Road, are also recent examples of this trend.

Bank development is also a big movement in Omaha’s retail arena right now, according to Magid.

“Banks are stepping up to the plate to pay for the hard corners of major intersections,” he says. “Developers used to go to Walgreens and McDonald’s to get the highest prices. Now regional and local banks will pay top price for good corners.”

Several examples include Wells Fargo’s new location at the southwest corner of 180th and Harrison streets; Great Western Bank’s new building at the southwest corner of 168th Street and West Maple Road; and SAC Federal Credit Union’s new location near 171st Street and West Maple Road.

With all of this retail development underway and planned for Omaha, the horizon looks bright for developers, residents and retailers alike. Corridors like West Maple Road, West Center Road and West Dodge Road, which are the main east/west arterials through the city, are expected to see a lot of retail activity in the near future. And the LaVista community to the south, especially along 72nd Street, is also a bright spot for activity. 

“Omaha is an excellent market with savvy shoppers and frequent diners,” Bacon says. “The new retail projects in the area are attracting retailers that traditionally required Omaha residents to travel to Kansas City, Chicago or Minneapolis.”

OFFICE

Although Omaha’s soft office market is starting to rebound (space availability is down 2 percent from 6 months ago), developers are taking a more conservative stance and, typically, are not coming out of the ground without having some sort of previous commitment.

“Speculative development has slowed down,” says Greg Hornish, president of Omaha-based The Hornish Company. “Developers are only building out of the ground where a portion of that building has been leased.

“Developers are cautious about how much speculative space is going to be available to their projects, given that we still have an overall availability rate in the market of 16 percent,” Secor says. “In the office arena, there is quite a bit of build-to-suit projects for sole building occupants as well as partial building occupants, where occupants may commit to a third or half of the building and then lease out the balance the way that they could potentially expand.”

For example, Opus is currently developing two single-user office buildings in Sarpy County. The first is a 110,000-square-foot regional headquarters for defense contractor Northrop Grumman at the intersection of Highway 370 and 36th Street in Bellevue (Sarpy County). The targeted occupancy is October. The second Opus project is a 90,000-square-foot office building for Lockheed Martin, also a defense contractor. Construction of the building, which is also located on Highway 370, is set to begin this month.

“That area of Omaha has had a nice uptick in activity because of the defense contracts with Stratcom, so it’s been a nice motivator here for developers,” Hornish says.

Along the West Dodge corridor, which is where the majority of office development is taking place, two significant office projects are underway. One California Place, a four-story, 60,000-square-foot building, is currently under construction at 136th and California streets in the Commercial Federal Park across from Boystown. Chip James is the developer. Brokerage firm Salomon Smith Barney will occupy 25 percent, or 15,000 square feet, of the building upon completion next month.

The other project is Westroads Office Park, which is being developed by Ron Cizek at the intersection of Interstate 680 and Dodge Street. The park currently has a 50,000-square-foot office building that is two-thirds leased, and another building is planned to come out of the ground in the near future. The park will support a total of 250,000 square feet. 

“Dodge Street is probably the most streamlined street that we have,” Hornish says. “Transportation and quick access to office parks, that’s been the primary reason that Dodge Street is one of the major submarkets in Omaha.”

While most of the office development is build-to-suit, Hornish notes that there are some developers in the market who are going against the conservative building trend.

“There are still a few developers who are more risk takers than others and they get bored, so they want to build,” he says. “But, their buildings are nothing of any size and not anything leased.”

Base rental rates for Class A office buildings in Omaha range from $15 to $17.50 per square foot. Yet, with building and operating expenses, the rate increases to $21 to $25 per square foot. Vacancy in the suburban market is 13 percent, climbing to 23 percent downtown. Space availability is 14 percent in the Class A market and 19 percent in the Class B market. Rental rates have stabilized in all Class A, B, C and D markets, and concessions, such as free rent, additional tenant leasehold improvements and moving allowances, continue to be prevalent in all classes of buildings, according to Secor.

In the near future, southwest Omaha and Sarpy County are the places to watch for office development, says Hornish. “I think the southwest seems to still be really strong,” he says. “Sarpy County also seems to be a hotbed of activity residentially, and what typically follows that is retail and office. That seems to be upticking nicely for local developers.”

INDUSTRIAL

Omaha’s industrial market has recently seen a lot of absorption with overall vacancy at approximately 9.2 percent in the warehouse category and 10.88 percent in the flex category, which is causing developers to pursue new speculative construction.

“There is good absorption of existing buildings for sale, especially in the 100,000-square-foot or less range,” says R.J. Neary with Investors Realty in Omaha. “Leasing has picked up in the last 6 months, but still is less than 2001 levels.”

Steven Reeder, vice president and partner at Omaha-based CB Richard Ellis/Mega, also notes the trend. “After a period of some slow absorption of existing space, we have recently seen some cautious plans for some new industrial spec construction,” he says. “Most of the new construction has been users building facilities for their own use.”

Oriental Trading Company, for example, recently built a 650,000-square-foot novelty wholesale warehouse/distribution center at 5455 S. 90th Street in southwest Omaha. They plan to add an additional 650,000 square feet in second and third phases. Yet, with the move into its new center, the company is leaving behind approximately 400,000 square feet of lease space.

Another company, Connectivity Solutions, formerly Western Electric, is working to consolidate within its campus. When this is done, there will be approximately 1 million square feet of space on 100 acres of industrial land left available.

“These are both large pockets for Omaha to absorb,” Neary says.

Users relocating to existing buildings continues to comprise a majority of the transactions in Omaha’s industrial market, according to Reeder. For example, the 300,000-square-foot National Crane Facility, which is located on 52 acres in Waverly, Nebraska, was recently sold. First Star Fiber also has purchased the 330,000-square-foot former Pamida DC warehouse, which is situated on 21.5 acres in southwest Omaha.

The majority of industrial development is taking place along the I-80 corridor in southwest Omaha, which is mostly due to the industrial zoning in Sarpy County, according to Reeder.

“Sarpy County is a huge growth area along I-80,” Magid says. “Exit 442 on I-80 gives drivers access to Harrison, Giles and 126th streets.”

“The I-80 Corridor is the hot spot,” Neary says. “It will continue to develop as Omaha’s newest industrial area.”

MULTIFAMILY

Omaha’s multifamily development is concentrated downtown, with a number of older buildings being converted into apartment and condominium uses. One ground-up condominium project along Omaha’s riverfront, however, is catching a lot of attention.

Riverfront Place is situated on a 6-acre site along the Missouri River’s edge, directly south of the Gallup complex. Being developed by Kim McGuire of Park City, Utah; Ross Robb of Tempe, Arizona; and John Kinnear of Santa Barbara, California, the project will feature two high-rise towers, a series of townhomes, a small commercial building and commercial restaurant space.

The project’s first phase, which is scheduled for completion in summer 2006, includes a 13-story, 39-unit residential tower and 18 townhomes. Construction is anticipated to begin this month. A future phase consists of a second stand-alone high-rise tower, which the developers hope to break ground on late this fall or early spring 2006.

“This project is kind of the first new construction for condominiums in downtown Omaha,” says Greg Peterson, president of Gregory A. Peterson Consulting and Omaha Owner’s representative for Riverfront Place.

Hawkins Construction Company is serving as the project’s contractor; RDG Planning & Design is providing architectural services.

Peterson believes that Riverfront Place is setting a new trend in Omaha’s multifamily sector, with the focus leaving apartment construction and instead concentrating on condominium development. “There have been a number of projects this past year announced for downtown that are condominium projects, and in downtown right now there are no projects that are under construction for apartments that are new,” he says. “There is a demand for residential in downtown that people can own.”

In light of this year’s positive start for all four property types, Omaha appears to be well on its way to recovery. And, with the revenue, new jobs and corporate expansions that will come on the heels of GO! and other economic development initiatives, the future holds much promise for the continued growth of Omaha’s commercial real estate market.


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