HEARTLAND SNAPSHOT, NOVEMBER 2008

Omaha, Nebraska Industrial Market

While other cities across the country have become overbuilt — driving vacancies up and rental rates down — Omaha has remained steady. With the rising costs of construction, Omaha has seen very little speculative building and rental rates have not been able to keep up with increasing costs. With construction costs and economic conditions hindering spec development in the Omaha industrial sector, there has been a rise in new owner-occupied facilities.

As the city develops southwest into Sarpy County, industrial growth is following in the area. Located along the Interstate 80 corridor are two recently developed industrial parks. With access to the interstate and shovel-ready sites, Hilltop and Cen Tech have experienced great success in attracting both owner/users and multi-tenant facilities.

As a result, both parks are seeing fewer available sites. For example, in the Hilltop Industrial Park in southwest Omaha, Glass Contractors, Kraft Food Company, Schering Plough, Cummins Central Power, Premier Distributing and Ford Storage have all recently completed facilities or have facilities under construction.

Additionally, Google and Yahoo have recently entered the market, which is igniting some significant industrial development throughout Omaha and its surrounding markets. Google recently purchased two industrial buildings with an additional 1,000 acres for its newest server farm facility in Council Bluffs, Iowa. It is estimated that Google will have $600 million invested in the project by its completion next year. Yahoo has purchased the 300,000-square-foot former Tender Heart Treasure facility, which is located in Omaha’s southwest submarket. The building was sold for $50 per square foot — a number not reflective of Omaha’s overall market. Yahoo selected the Tender Heart Treasure building site due to its close proximity to heavy power and water utilities.

The consolidation of one company’s operations has enabled two local companies to expand in the region. Connectivity Solutions consolidated operations at its 1 million-square-foot facility located on 120th and L streets, selling two significant parts of the building.  Millard Lumber has moved its entire operation indoors by taking 580,000 square feet at the facility. It is now the country’s largest indoor lumber and builder supply store.  Specialty Finishing Printing Company relocated into 400,000 square feet of space on the east side of the facility. The remaining undeveloped ground was developed into a mixed-use project containing Wal-Mart, The Home Depot and other national retailers.

In the middle of Omaha, Denver-based Alliance Commercial Properties Co. and Washington D.C.-based H Street Ventures, which are both new to Omaha, have formed a partnership to redevelop the Crown and Cork Industrial facility. The partnership purchased the 291,129-square-foot facility and completely renovated the structure. The building currently has two tenants: Crown Cork and Seal, which leased back 120,400 square feet, and Outlook Nebraska, which now occupies 78,656 square feet. Additionally, the site includes 21 acres of land for sale. With its proximity to I-80 and its location in the middle of Omaha, this in-fill redevelopment will be very successful.

In addition to industrial development, some major leases have recently been closed in the Omaha industrial market. Ford Storage has taken two buildings totaling 105,400 square feet located along I Street at 103rd and 120th streets. In Lincoln, Nebraska, South East Ranch has leased 341,440 square feet of space at 1200 W. Upland Ave. Other new tenants in Omaha include Street Scholastic Book (29,330 square feet), Gordmans (30,480 square feet), Omaha Sports Academy (34,245 square feet), Gustave Larson (30,000 square feet), and TelMar (58,500 square feet).

Landlords have not been attempting to lease to any one type of tenant.  While certain tenants are obviously harder users on facilities, such as manufacturers, landlords are focusing on credit-rated tenants to fill their vacancies. According to CBRE|Mega reports, the average total rental rate for Omaha is $4.48 per square foot. Flex building rental rates are at $6.82 per square foot, and warehouse rental rate averages are at $3.89 per square foot. With a total vacancy rate of 5.67 percent, flex building vacancies are at 9.38 percent and warehouses vacancies stand at 5.15 percent.

 As available industrial ground to the southwest becomes scarce and no new planned industrial parks are in the works, it is unknown what to expect. One would expect to see another industrial park along the I-80 corridor; however, city planners have mapped future land use and have tagged Omaha’s northwest corridor as where they would like to see future industrial development.

New product is not coming on-line with urgency, keeping vacancy rates low but rental rates flat.  Development in Omaha has not been overbuilt, allowing the market to remain strong. Moving into 2009, it will be interesting to see what properties will come on the market.

— Sam Andres is an associate in the Brokerage Services Group of CB Richard Ellis|MEGA in Omaha, Nebraska.

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