HEARTLAND SNAPSHOT, JULY 2007

Omaha Office Market

Dignitaries gathered in late April for a ribbon-cutting ceremony at the latest high-tech operations center to open in Omaha. Internet giant LinkedIn Corp., the world’s largest professional network, chose Omaha for its first sales and service center. The Palo Alto, Calif.-based company has more than 10 million current customers and is adding more than 130,000 new customers per week.

Although LinkedIn’s operations in Omaha are rather small for the time being, the company has big plans for growth in the Omaha market, thanks to the abundance of technical, communications and customer-service professionals in the area.

As a longtime telecom hub, Omaha continues to become a more prominent player in a variety of technology fields – Internet, bioinformatics and defense. “New Economy” companies are constructing owner-user buildings and leasing existing office space throughout the metro area.

Another California-based Internet firm, PayPal, doubled the size of its Omaha operations earlier this year with the construction of a 125,000-square-foot second office building on its suburban La Vista, Neb., campus. PayPal now has 2,000 employees at the site and eventually plans to increase that number to 3,000.

With the expansion of high-tech and medical office users in suburban Omaha, and insurance and finance users in the central business district, the local office market is healthy. Overall vacancy is 16 percent, healthy enough to garner decent rental rates but soft enough for economic developers to recruit office users.

Downtown vacancy rates are now at 15 percent, a substantial improvement from the 35 percent vacancy rates the area experienced a few years ago. Organizations such as Pacific Life, First Comp and the University of Nebraska have leased significant downtown space. Some downtown Class B properties have been converted into residential condominium projects, greatly reducing vacancy rates. Even though the majority of Omaha’s office space is Class B, developers are adding significant amounts of Class A space. Annual asking rental rates for Class A space average $17.50 per square foot, triple net.

There are a few significant trends in Omaha’s office market. We have seen the emergence of ownership units and the proliferation of suburban medical space. Several developers are marketing office condos, including one Minnesota developer’s addition of 160,000 square feet of office-condo space among five suburban developments.

As one of the world’s smallest cities to host two major medical colleges, Omaha has an unusually large concentration of healthcare practitioners. Since restrictions have been lifted on suburban hospital construction in Omaha, two hospital buildings are under development along the West Dodge Freeway between 175th and 192nd streets. The number of suburban medical offices is exploding.  

Office development is concentrated in several submarkets, including the West Dodge corridor, Southport, Coventry, Midtown and Ak-Sar-Ben Village.

Along West Dodge, two Class A office parks straddling 140th Street are mostly full. Three Class A buildings are under construction in this area, including a 100,000-square-foot building for Omaha-based C&A Industries.

Located along Interstate 80 in La Vista, Southport is a 237-acre mixed-use development home to the PayPal campus. New office construction within Southport includes Securities America’s 87,000-square-foot headquarters, plus a yet-to-be-announced office project for an engineering firm.

Coventry is a 383-acre, $410 million mixed-use development located southwest of 204th and Q streets. Applied Communications is building a 162,000-square-foot headquarters there to be completed in late 2008. Coventry will include 400,000 square feet of office space when complete.

In Midtown, insurance giant Mutual of Omaha is investing $250 million in a massive 15-block redevelopment area known as Midtown Crossing at Turner Park. Most of the new buildings on this site will be residential and retail, but there will also be more than 120,000 square feet of office space available for lease.

Grading is underway at Ak-Sar-Ben Village, a 70-acre mixed-use project on a former horse-racing track near 72nd and Center streets, which is immediately adjacent to the University of Nebraska at Omaha’s south campus. Ak-Sar-Ben Village will have 750,000 square feet of office space, 250,000 square feet of retail and entertainment uses, 500 housing units and a 135-room Courtyard by Marriott hotel. A few office users, including a local engineering company, have committed to leasing space.

After adding 2 million square feet of office space in 2003 and 2004, downtown office construction has cooled. However, that could soon change. The Omaha World-Herald — the local newspaper — recently moved across the street into an existing 15-story building, leaving behind an entire city block in a hot development area.

Just to the north, adjacent to the Qwest Center Omaha convention center and arena, the city is rapidly developing a former rail yard into an 80-block urban renewal district. Millions of dollars have already been poured into this area, with four hotels and two mixed-use buildings under construction. Much more development is expected, including an unnamed major office user that is reportedly considering relocating its suburban office to this area.   

— Jeff Beals is the vice president of operations with Coldwell Banker Commercial World Group.


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