By Dan Rafter, Editor
The same word comes up when developers, brokers and other professionals speak about the Omaha commercial real estate market: resilient.
Yes, the Omaha commercial real estate market isn’t immune to the challenges of higher interest rates, increasing construction costs, stubborn inflation and a shortage of skilled labor. It’s why Omaha is seeing fewer investment sales of commercial real estate assets, and why vacancy rates are up in certain sectors.
But even with a slight slowdown in leasing and sales activity, the Omaha commercial real estate market remains one of the steadiest in the Midwest. Developers are still planning new industrial facilities and office buildings. New-to-market retailers continue to target Omaha. And the market’s multifamily properties continue to fill up with renters eager to live in both downtown Omaha and its suburban communities.
What is Omaha’s secret? It’s nothing revolutionary. Developers and brokers point to the experienced development community here, the strong partnership between the government and private sector, the continued investment in downtown Omaha and the lower cost of living and strong amenities that make Omaha such an appealing place to call home.
It all combines to make Omaha one of the most resilient of Midwest markets, even when the national economy continues to throw challenges at the brokers and developers working here.
Outperforming the rest of the country
Mike Homa, president of the Nebraska Division for R&R Realty Group, points to the Omaha-area office market as evidence of this region’s resiliency. While the office sector here has faced challenges resulting from the work-from-home movement, it’s fared far better than this sector has performed in other U.S. cities.
Mike Homa (Photo courtesy of R&R Realty Group.)
Homa said that the overall office vacancy rate in the Omaha market stands at a low 9%, below even pre-pandemic levels. That vacancy rate is even lower for the most desirable of office properties, with Homa saying that the Class-A vacancy rate in the Omaha office market is in the 4% to 5% range.
“That is a function of people wanting to be in nicer, high-quality spaces,” Homa said. “Class-B office space is not doing as well. That’s not any big revelation. Those trends are consistent across the country. But overall, the Omaha office market is in really good shape, except for a few pockets around town.”
Other sectors are resilient, too. Homa said that the Omaha-area industrial sector has seen a slight increase in vacancy rates during the last two quarters. That’s primarily because so much new industrial product has been delivered to the market. But even with that slight increase, the Omaha-area industrial vacancy rate remains near 2.5%, Homa said.
“That vacancy rate is still quite low,” he said. “That slight uptick is nothing to be worried about.”
Owners and developers are getting creative in Omaha, too, to help preserve the market’s well-known resiliency. NuStyle Development has purchased the Central Park Plaza office property on S. 15th Street between Farnam and Douglas streets in downtown Omaha. NuStyle will convert the office towers into an apartment building called The Duo.
Homa said that this is the first major office-to-multifamily conversion in the Omaha market. It might not be the last: Developers across the country are converting outdated office space into other uses, often multifamily properties or hotels. The challenge? These old office buildings must be in the right locations, while converting office space into other uses can be so expensive that the adaptive re-use doesn’t make sense.
Still, the conversion trend could be one way to eliminate some of the harder-to-lease older office space in the Omaha market.
Omaha boasts two major office developments now underway. Mutual of Omaha is building a 44-story office tower in downtown Omaha that will serve as the company’s headquarters. This project is expected to be finished in 2026.
Construction crews are also working on the headquarters campus for Applied Underwriters. This campus is located in the Heartwood Preserve mixed-use development that will cover 500 acres.
“The general sentiment about office in Omaha is cautiously good,” Homa said. “The people whom I visit with in the business community want their people back in the office. They are balancing that want with the hybrid work model. I’m not too familiar with many companies that are just vacating their office space and having everyone work remotely. That trend has kind of come and gone.”
Homa said that even those companies that have embraced a hybrid work model still need office space.
“We are a resilient market,” Homa said. “We are conservative in our approach to development. We have a diverse economy here, too. Economically, we don’t seem to experience the big swings up or down largely because of the different types of business and industry we have. The business community leaders in Omaha see the value of having their employees in the office together. They understand that this is how you build a company culture. We are fortunate to have business leaders who think that way.”