HEARTLAND SNAPSHOT, NOVEMBER 2004

Omaha Office Market

Most office projects currently under construction in Omaha are either build-to-suit or contain significant pre-lease commitments, according to Richard Secor Jr., senior vice president of The Lund Company. The lack of significant speculative development will continue as long as office space supply and demand is not in equilibrium. “The office market is currently experiencing an 18 percent availability factor, and only recently has there been a slight decline in vacancy, which would suggest a rebound is on the way,” he says.

A more specific trend that the market is experiencing is medical facility development. Frauenshuh Companies of Bloomington, Minnesota, recently developed a 106,000-square-foot orthopedic hospital, for example, at 144th and West Center Road. In addition, DESCO is developing a 100,000-square-foot medical building at 168th and West Center Road, which is adjacent to the recently opened Alegent Hospital.

In addition to build-to-suit projects, there are eight traditional (non-medical) office buildings, comprising approximately 322,500 square feet, under construction. “The additional construction, coupled with existing space availability, positions the city to attract existing business expansion, as well as new business entry,” Secor says.

Union Pacific Railroad recently completed its new 1 million-square-foot headquarters building, which will add significant square feet to an already soft downtown Omaha submarket. “The railroad will be vacating as much as 300,000 square feet, potentially raising the availability rate in that submarket by as much as 30 percent,” Secor says. “It should be noted, however, that much of the space to be vacated may be slated for alternative use and may significantly reduce the forecasted office space availability.”

Much of the office development in Omaha is taking place in the Bellevue/Sarpy County submarket in close proximity to the U.S. Military’s Unified Strategic Command (STRATCOM) situated at Offutt Air Force Base. “Many defense contractors and related industries have an active interest in either expanding their present operations in the market and/or setting up new office locations to support the growth of STRATCOM,” he says. Opus, which has recently returned to the area as a developer, is currently developing the 110,000-square-foot Northrop Grumman office facility in Sarpy County as well.

In addition, several office developments are occurring in two suburban areas, the suburban West Dodge Road Corridor submarket and the suburban Southwest submarket. In the suburban West Dodge Road Corridor submarket, for example, Commercial Federal Bank is building a 114,000-square-foot corporate facility at 137th and West Dodge Road in the Commercial Federal Business Park. Two additional office buildings are also under construction within the same park. Home-Instead is developing a two-story, 36,000-square-foot office building at 134th and West Dodge Road. The firm will occupy 50 percent of the building. In addition, Darland Corporation is building One California Place, a four-story, 60,000-square-foot office building at 138th and West Dodge Road, for Lockwood Development. Solomon Smith Barney will be occupying 19,000 square feet in the building. “The professional office park’s setting coupled with its proximity to West Dodge Road, Omaha’s main arterial, is what attracts companies to develop there,” Secor says.

Four office buildings are presently under construction in the suburban Southwest submarket. In addition to the Alegent Health building, a second medical office building, Lakeside Hills Medical Plaza, is under construction in close proximity to the Alegent complex. A local developer is constructing the approximately 27,000-square-foot building. Two additional non-medical office buildings are under construction within the same area: 16929 Frances Street is a two-story, approximately 26,000-square-foot office building, and Legacy Place, which is located at 173rd and Wright, is a three-story, 27,000-square-foot office building. “To a large extent, the office buildings under construction in the suburban Southwest submarket are fulfilling medical practice demand as a result of the recently opened Alegent Hospital,” Secor says. “In addition, the specific trade area bounded between 168th and 180th streets along West Center Road has experienced explosive retail development growth that provides complementary services to office building occupants.”

Finally, in the 72nd Street Corridor submarket, the approximately 30,000-square-foot second phase of the Scott Technology Center, which is being developed by Walter Scott, former chairman of Kiewit Construction Company, is under construction. “This building, along with its sister (Phase I), serves as an incubator for technology firms,” he says.

Tenants such as Commercial Federal Bank, Union Pacific Railroad, Vatterott College, AAA Nebraska, Northrop Grumman, Alegent Health, Blue Cross & Blue Shield of Nebraska and Hammocks.com are absorbing the majority of space in Omaha’s office market, in which current rental rates for Class A space are $15.50 to $17.50 per square foot. Vacancy rates are 27 percent downtown/midtown; 14 percent in the suburbs; 15 percent in the Class A market; and 20 percent in the Class B market.

“Midway through the year, overall space availability in the market approximated 18 percent, in contrast to the 19 percent rate just 6 months prior,” Secor says. “This is the first significant sign of space availability decrease in the market in several years and would suggest that the Omaha office space market is beginning to turnaround.”

©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054

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