CITY HIGHLIGHT, APRIL 2010

OMAHA CITY HIGHLIGHTS
Jon Kerkhoff, Jeremy Fink, Ryan Ellis, David Wilson

Omaha Retail Market

Omaha is in the middle — the middle of the country and in the middle economically, without booms and busts. The Omaha market generally take the middle course, with fairly consistent growth in the 1- to 2-percent range. Our retail community is no different.

Omaha does not have great volumes of never-leased space, but the market is seeing vacancies in smaller spaces formerly occupied by chains and local merchants. In some cases this is a real opportunity. Food and beverage operators are backfilling built-out space to their advantage.

Some retail space is past its prime. For example, The Crossroads property, located at 72nd and Dodge streets was recently reclaimed by its lender. The location is prime but the improvements need to be replaced. Whether it will remain solely retail in nature — Target and Sears plan to stay — or be redone as a mixed-use center remains to be seen.

There is new development the in the metro marketplace. Hy-Vee is under construction at Stony Brook, located at 144th and Stony Brook Boulevard, and the company announced plans to build at both 180th and Pacific and along on West Broadway in Council Bluffs, Iowa. Additionally, ALDI continues to penetrate the market. Its new store just north of 30th and Ames is the first new construction in this area in many years. The retailer also has a presence in the South Omaha market area at 29th and K streets. Metro Crossing, located at 36 and Metro Drive in Council Bluffs, recently opened with Shopko, Petco, JC Penney and Shoe Carnival. Also, a Menards location is under construction at 72nd and L streets.

The biggest local news is Midtown Crossing, Mutual of Omaha’s enormous mixed-use center at 33rd and Farnam. Stores that are beginning to open include numerous restaurants, a theater, grocery stores and a fitness center, which will soon be complemented by a hotel. Shadow Lake Towne Center, located at 72nd and Highway 370, continues to fill. Major tenants include Hy-Vee, T.J. Maxx, Gordmans, Best Buy and JC Penney. Older centers continue to be remodeled, with Beverly Hills Plaza and Westwood Plaza as prominent examples.

New development of smaller centers and out parcel buildings is lacking. This is due in part to relatively large amounts of available small tenant space, some due to closings, some never leased. Much of the never leased space is either lacking in access and/or visibility. New planning requirements are partly at fault. The slowdown of leasing nationally by chains and fewer local startups are contributors. Development in some infill areas has not progressed with the economic downturn. Obvious opportunities have not yet materialized. The area near the Qwest Center with the new ballpark, as well as South Omaha, comes to mind. The latter submarket has almost no vacancy and vibrant growth.

What then of the future? Omaha went into the downturn late and appears to be recovering more quickly than most markets. Vacancies in well-located, visible and accessible space are filling. Development will return but probably not for a couple of years.

— Jon Kerkhoff is a principal with Omaha, Nebraska-based The Lund Company.

Omaha Multifamily Market

Omaha’s multifamily sector continues to be lackluster due to the economic downturn that is affecting the country. The downturn coupled with the high cost of construction has kept new developments at bay and will continue to hinder future development. The difficulties in the financial sector and the lack of job growth has also caused development to stall in the Omaha area.

Recent projects have been mixed-use properties featuring live, work and play environments. Most notably are the Pinhook Flats at Aksarben in Noodle Cos.’ Aksarben Village, and Midtown Crossing at Turner Park. Pinhook Flats, which is managed by Omaha-based Robert Hancock & Co., offers studio, one- and two-bedroom apartment units and townhomes. Both Pinhook Flats and Midtown Crossing are targeted to young professionals and empty-nester adults. Additionally, a few projects are in the pipeline for age- and income-restricted tenants. Omaha is offering tax credits and incentives for new projects, especially those that are affordable-housing or senior-housing related.

Farmington Hills, Michigan-based Edward Rose & Sons is active in the Omaha multifamily market. The company currently has three properties in the market, including West Hampton Park in Elkhorn, Brentwood Park Apartments in La Vista and Colonial Pointe at Fairview in Bellevue. Edward Rose has acquired additional land in the market for future developments.

Omaha’s market wide vacancy rate is approximately 92 percent. Rents range from $1.03 per square foot for studios, $0.85 per square foot for one-bedroom units, $0.71 per square foot for two-bedroom units and $0.65 per square foot for three-bedroom units.

For future development opportunities, investors should look toward the West and Southwest submarkets of Omaha where land is plentiful. The growth corridors for Omaha are focusing around the Southwest submarket, as well as West Dodge Road, which is the “main and main” of the city.

— Jeremy Fink is a senior associate broker with CB Richard Ellis|MEGA in Omaha, Nebraska.

Omaha Office Market

Pockets of medical office development are occurring in Omaha with one common perception — even during a down economic cycle, build it bigger and better and they will come. With several large, corporate headquarters under construction, the hope for the general office market is that the same trend will follow when economic conditions improve.

Many of the most visible medical office projects stem from Omaha’s main traffic artery of Dodge Street and West Dodge Road. The new Methodist Women’s hospital near 192nd Street and West Dodge Road has helped generate activity in the Village Pointe area, including the University of Nebraska Medical Center Clinical Cancer Center at 180th Street and West Dodge Road. The market has seen conversion of existing retail facilities that surround the Village Pointe shopping center from retail to office and medical office use. For example, the former Letter Club sports bar has been redeveloped into a dental office.

Towards the city’s center, 84nd Street and West Dodge Road, a new $60 million addition to the Children’s Hospital has started. Just five blocks west of the hospital, Midwest Endoscopy Services recently settled into approximately 65,000 square feet. The office moved after the addition of a state-of-the-art surgery center, new high-tech HVAC and filtering systems, an in-house fitness facility and the latest security monitoring equipment. The improvements, all medical in focus, to the building at 8901 Indian Hills Drive increase the value of the building and simultaneously made the remaining space in the building highly marketable to a smaller medical user who can benefit from the building’s Class A improvements. In general, Class A buildings of this caliber are being market at rates upwards of $20 per square foot triple net. In the immediate sub-area, Class B buildings are being offered below the premium and frequently include incentives such as free rent or increased tenant improvement allowances.

Although the office market faces more challenges than the medical office sector resulting from the current economic climate, several leading national companies in Omaha have major new developments in Old Mill, Aksarben Village and downtown that are helping to increase activity in certain areas.

T.D. Ameritrade and Blue Cross Blue Shield are both in the midst of constructing new headquarters in Omaha. T.D. Ameritrade is developing a $50 million campus in the once languishing Old Mill area. Prior to its occupancy in several office properties the vacancy rate in Old Mill was approaching 20 percent. Currently the vacancy rate in the area is near 10 percent and the new construction seems to have prompted increased interest in existing Class B office space. Similarly, Blue Cross Blue Shield is developing a 315,000-square-foot, 10-story building in Aksarben Village. This project is likely to increase vacancy rates in the area where the company is vacating. However, Blue Cross’ commitment to Aksarben Village has helped developers obtain commitments from retailers and hopefully office users will follow suit committing to the area.

Keeping with the positive trend, just north of the Qwest Center is beginning to see more development. Currently this is a mixed-use commercial area designed for office and industrial users. The changes to this area have helped to create a youthful energy designed for a variety of user types. Together with the excitement generated from the developing baseball stadium, this area is something to watch in the next several years. An example of a new development in this area is the 140,000-square-foot Mastercraft Building. The developer envisioned a building with artists, small industry users creating local goods and office users. Interestingly, the first tenants to commit to the building are office users and they have attracted other offices users who might not have considered the building previously. Hopefully the pattern of attracting like-minded users will continue and spawn other successful development throughout Omaha.

— Ryan Ellis is president and a sales and leasing broker with Omaha, Nebraska-based P.J. Morgan Real Estate.

Omaha Industrial Market

Omaha’s industrial market is making strides toward a recovery from the economic downturn. The market has always boasted stronger statistics than the national average, currently Omaha’s job growth is negative 2 percent compared to the national average of negative 4 percent, and unemployment is at 5.2 percent.

“Sightings are improving, people are coming out for more showings and there’s more activity right now in the first quarter than we have seen in the past,” says David Wilson, vice president with Omaha-based NAI DP Dodge.

Local construction and transaction trends are scarce, but there has been a slight uptick in owner-occupied construction projects and rehabilitation projects. Omaha investors are acquiring Class B properties to renovate and reposition for new tenants. Local developers note that construction costs have decreased approximately 15 to 20 percent from the highs of 2 years ago, making now an opportune time to develop.

On the leasing front, the majority of the lease activity is in small 5,000- to 20,000-square-foot industrial properties. Last quarter, two larger warehouse leases, 80,000 and 92,000 square feet, closed in the market. Additionally, Nashua’s 160,000-square-foot manufacturing facility in Omaha will be on the market by mid-summer.

“There’s not much inventory for sale, but standalone buildings are always in demand in the Omaha market,” notes Wilson.

Landlords are taking notice of the increased showings and interest in the market, and Wilson suggests that increased incentives and concessions will soon be reduced or taken out of play. “To prospective builders and tenants, now is the tail end of concessions in the Omaha market and it’s the right time to take advantage of what’s still being offered,” he says.

Rental rates of transactions more than 5,000 square feet range between $4 and $5 per square foot, with a low of $3.25 and a high of $6.25. Vacancy rates for the market vary with the central business district at 19 percent, the Northeast submarket at 17 percent and the Southwest market at 10 percent. Overall, Omaha has approximately 3 million square feet of vacant property, with 2 million of the available space in Sarpy County to the southwest.

Land availability within Omaha’s city limits is limited, so developers are looking southwest to Sarpy County and to the North Omaha Development (NoDo) submarkets. Development is expected to continue in the Southwest submarket, but NoDo may soon come to the forefront. TD Ameritrade is currently developing TD Ameritrade Park Stadium in NoDo, which is slated for completion in 2011. Home to the National Collegiate Athletic Association’s Men’s College World Series, the industrial-zone area is poised to become a development hotspot.

CITY SPOTLIGHT: LINCOLN, NEBRASKA

Lincoln, Nebraska, is fortunate in that the local economy remains healthier than most markets due to the presence of state government and the University of Nebraska’s main campus. Though the office, retail and industrial sectors have all experienced a slowdown in activity and an increase in vacancies, a significant amount of growth is on the horizon, which could change the landscape of Lincoln.

Downtown Lincoln is seeing a wave of revitalization with about $1.8 billion in projects under way or planned in or near the central business district. A major catalyst for the downtown projects is in the West Haymarket, which includes a proposed 16,000-seat arena. In May, Lincoln residents will vote on a portion of the financing for the $500 million project, which includes private development of an ice center, a hotel, retail, office and residential space. The arena development is expected to impact the community by creating new jobs and $260 million in economic activity annually.

Another prominent project is the University of Nebraska’s $800 million investment in converting a 250-acre site into a public/private research and development center. Innovation Campus’ first tenant is expected to be a United States Department of Agricultural research facility. Other major projects for downtown include Assurity Life’s new 175,000-square-foot headquarters to be completed at the end of 2011; a new $15 million headquarters for Farmer’s Mutual Insurance; and a new museum facility for the Sheldon Art Gallery.

The east and south side of Lincoln are where new growth is centered for retail and office. Near the intersection of 84th and Adams streets, Wal-Mart opened its third location in Lincoln in a large retail development that has since stalled due to lack of response from other big box users. Kohl’s opened a south location in Wilderness Hills, a new lifestyle center at 27th Street and Yankee Hill Road. Apples Way, a retail development in south Lincoln, has added two big-box stores, Lowe’s Home Improvement Warehouse and Office Depot. A handful of new retailers and restaurants have entered the Lincoln market, including Staples, Five Guys, Texas Roadhouse and American Greetings.

Lincoln’s office vacancy rates edged higher to 10.4 percent. Asking rates softened and landlords offered more concessions to serious tenants. New space was predominantly build-to-suit bringing the total office inventory to more than 12 million square feet. The major project to come online in late 2009 was the growth and consolidation of Dell Perot Systems into their new build-to-suit, 152,000-square-foot office building in the University of Nebraska Technology Park. In the suburban market, a $14 million office building for Veterans Affairs is expected to be completed in summer 2010.

Lincoln’s industrial market saw an increase in sales and leasing activity in 2009, as companies took advantage of lower rental rates and vacancies but not enough to stop the upward trend as overall vacancy increased to 13.5 percent. Most notable industrial project was a 72,000-square-foot addition to a cold storage facility.

The 2010 forecast suggests a continuation of a slower market but Lincoln’s economy should fair better than the national economy. Higher quality of life and a lower cost of living index make Lincoln an attractive place to invest and do business.

— Richard Meginnis is an executive vice president at NAI FMA Realty in Lincoln, Nebraska.

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