A thriving industrial market. An evolving retail sector. Booming demand for multifamily housing. These are all fueling the ever-steady Omaha commercial real estate market.
And the good news? Developers are building new warehouse facilities at a sizzling clip, while retailers are targeting the Omaha market for their expansion plans. At the same time, demand continues to soar for new multifamily projects.
It all adds up to a real estate market that has remained consistent throughout the pandemic and today, as the country slowly makes it way past COVID-19.
Jon Blumenthal, partner with Omaha law firm Baird Holm, said that the city has long been fortunate: Even in down markets, commercial real estate activity has remained steady. This hasn’t changed throughout the COVID-19 pandemic.
This isn’t to say that COVID-19 didn’t slow Omaha leases, sales and new construction. It did. But the impact of the pandemic wasn’t as strong here as it was on the real estate markets and economies of some other Midwest cities, Blumenthal said.
That’s largely because while Omaha did take precautions against COVID-19, the city did not experience lockdowns that lasted as long as they did in other markets. Because of this, Omaha’s businesses mostly continued to operate even during the earliest days of the pandemic.
“We were able to keep working and building through more of the pandemic,” Blumenthal said. “Omaha is still booming. We have a lot going on here right now.”
This includes an ongoing redevelopment in downtown Omaha and the city’s riverfront area. There is also the redevelopment of Conagra’s downtown campus into a mixed-use development featuring nearly 400 apartments, a hotel and retail space. The project, developed by real estate firm Hines and Conagra, is known as the Mercantile and overlooks Omaha’s Heartland of America Park.
Blumenthal said that downtown Omaha has largely rebounded from any pandemic-related slowdowns, pointing to the city’s Old Market district and the area around Charles Schwab Field — a baseball stadium home to the College World Series — as being particularly busy today.
Blumenthal said that the low crime statistics in downtown has helped keep this part of the city strong.
“I know some downtowns have faced crime issues during the pandemic,” Blumenthal said. “But Omaha has a low-crime downtown. People feel safe here. People feel safe bringing their families to downtown on the weekends.”
Another positive? Commercial real estate activity remains high in Omaha’s suburban areas, too. Blumenthal points to the suburb of Gretna, Nebraska, as a good example. This suburban area on the outskirts of Omaha is benefitting today from a surge in industrial activity. Developers are targeting the suburb for new warehouse and manufacturing spaces.
One step forward, but two steps back. That’s how J.P. Raynor, an office specialist with Omaha’s Investors Realty, describes the Omaha office market.
It’s true that Omaha’s office sector is seeing more new leases than it did during the height of the COVID-19 pandemic, Raynor said. But tenants are also downsizing. Employees are continuing to work from home. This combination has brought plenty of uncertainty to the Omaha office market.
Investors Realty regularly talks to chief executive officers and chief operating officers of companies throughout the Omaha market. These company leaders say that about 50% of workers want to work from home on a permanent basis, Raynor said. Another 25% want to work on a hybrid schedule, spending two or three days a week in the office. The remaining 25% want to be in the office on a full-time basis, as they were before March of 2020.
That makes it difficult for companies, especially today, to consider expanding their office space. But Raynor said that the reluctance of workers to go into the office might not be as permanent as some think.
“Business owners have told us that they think it is more efficient to have employees in the office. They say it leads to more collaboration when employees are not working from home,” Raynor said. “Right now, we are in an employees’ market. That is dictating the work-from-home strategies we are seeing. Sometime in the next five years, the market might switch back to an employers’ market. When that happens, I think you will see a shift back to people working in the office.”
It’s important to note, too, that not all employers have embraced remote working. Raynor said that smaller companies, those generally occupying under 5,000 square feet of office space, typically have more employees working more often in the office.
Larger companies, though, are still determining when they will bring most of their workers back to the office, Raynor said, with many of their employees still working remotely.
“It has been more difficult for larger companies,” Raynor said. “They have more people working for them, so it’s challenging to allow for social distancing. Because of this, small- and medium-sized companies were bringing people back to the office on a more regular basis.”
While Omaha’s office market has faced its challenges, Raynor said that it’s also been fortunate. This sector doesn’t rely on just one industry. Instead, the Omaha office market features a diverse array of businesses.
One type of office user that is common in Omaha are medical staffing companies. Raynor said that these users thrived during the COVID-19 pandemic, providing a boost to the local office market.
“Medical staffing companies were prospering and leasing a lot of space,” Raynor said. “That helped prevent the office market from becoming disastrous during the pandemic.”
There has been some good news in the downtown Omaha office market during the pandemic. Earlier this year, insurance giant Mutual of Omaha announced that it will develop a new headquarters tower in downtown Omaha.
“Anytime one of your Fortune 500 companies wants to make a significant investment in staying or relocating, that is great for downtown,” Blumenthal said. “This will be huge for downtown Omaha. It will benefit all of downtown. There will be ancillary buildings around the Mutual of Omaha headquarters.”
At the same time, the city of Omaha has committed to launching a modern streetcar line that will travel through downtown Omaha. In a press release, Mutual of Omaha officials said that the addition of this public transit option is one reason why the company has committed to downtown.
Raynor agreed that the streetcar will be a positive for downtown Omaha’s office market. Many corporations are looking for locations that offer public transit options for their workers.
“Public transit is a box that corporations want to check,” Raynor said. “Omaha has never had that box checked. Hopefully, with the addition of rapid buses and the streetcar, that will start to be a positive for us instead of a negative. It will bode well for Omaha in the long run.”
As in most other office markets, building owners in Omaha are focusing increasingly on higher-end amenities to attract tenants. And companies are looking for buildings that feature these amenities as one tool to help attract workers back to the office.
In a jobs market that favors workers, companies are also highlighting these amenities – everything from onsite gyms and healthy eating options to rooftop gardens and collaborative areas – to attract and retain the best talent.
Raynor said that newer Class-A office buildings today feature underground parking, onsite gyms, collaboration spaces, bars and game rooms. He’s even seen companies employing masseurs and chiropractors at their offices.
Also as in many other markets, tenants today are looking more frequently at office space in suburban locations than they are in downtown Omaha. But Raynor said that this, too, isn’t a permanent trend. He pointed to Mutual of Omaha’s decision to build in downtown, along with the ongoing riverfront revitalization project taking place now along the city’s riverside, as two reasons why downtown Omaha is set for a resurgence in office activity.
“I think the trends will start to shift in downtown Omaha’s favor again,” Raynor said. “Every four years or so it shifts. I think that will happen again.”
Some commercial sectors are stronger than others, of course. Leading the way is industrial, which has thrived during the COVID-19 pandemic.
“There is a tremendous demand for industrial real estate here,” Blumenthal said. “Developers are trying to keep up with the demand. So many tenants are searching for industrial space today. And it doesn’t look like this will change anytime soon.”
Demand for multifamily space is on the rise, too, Blumenthal said. And this demand is high just about everywhere in the market, from downtown Omaha to Council Bluffs, Iowa.
Much of this demand is driven by Omaha’s equally strong housing market. As housing prices continue to rise, more would-be homeowners are choosing to rent, at least for now.
“Our housing market has experienced a hefty increase in valuations,” Blumenthal said. “That’s good and bad. It’s good for homeowners, but harder for first-time homeowners to buy a house. There is a tremendous need for good multifamily options.”
One example of a new multifamily project in the works is 72nd & Center by Meridian Development. This development, in the predevelopment stage now, will be marketed toward young professionals and active empty nesters and feature 250 new multifamily units.
Blumenthal said that developers so far are keeping pace with the demand for new multifamily units. He emphasized, though, that they are only keeping pace: They are far from injecting an oversupply of rental units into the market.
The retail sector, of course, was hit hard by the pandemic, and Blumenthal said that Omaha’s retailers are still adapting to changing consumer habits. He said that many retailers are focusing on an omnichannel approach, focusing both on building up their online presence and making sure their brick-and-mortar locations are helping to drive sales, whether those sales are in-person or online.
Jared Sullivan, associate broker with Omaha’s The Lerner Company, agreed that retailers throughout Omaha — and the country — expanded their services during the pandemic as a way to keep the customers coming.
He points to Chipotle, which recently introduced its Chipotlane concept. Customers can order their burritos and bowls online, drive to their nearest restaurant and pick up their orders from a lane dedicated only to these online orders.
“That is going to become a gold standard in fast-casual service,” Sullivan said. “Chipotle won’t be opening many new sites without that Chipotlane. Other retailers like Starbucks feature mobile-order pick-up stalls. It’s an easy way to get customers their orders quickly.”
During the pandemic quick-service restaurants have thrived, both in Omaha and across the country, Sullivan said. Sullivan said that automotive-supply stores have been firmly in expansion mode, too.
The labor crunch
The biggest challenge today? Sullivan said that these expanding businesses are struggling to find workers.
“Getting people who are good and qualified and show up to work is the big challenge,” Sullivan said. “That is the only thing that is causing a downward pressure on sales for a lot of businesses. You can’t find peopel to come in and work. That employment challenge is really difficult.”
And there are few signs that this challenge is easing. Sullivan said that Nebraska as a whole has had one of the country’s lowest unemployment rates this year.
“There is no light at the end of the tunnel,” Sullivan said. “If Chipotle is having a hard time finding staff, you know all the quick-service restaurants are having a hard time. It’s just difficult today to get people who show up.”
As the pandemic continues to ease, Sullivan said several retailers are either entering Omaha for the first time or are opening new locations.
This includes Tidal Wave Auto Spa, a high-end car wash that is busy expanding throughout the Omaha market. Smash Park pickleball, a West Des Moines, Iowa-based pickleball-based entertainment center, is also expanding aggressively throughout the Midwest, Sullivan said. And Topgolf, a golf entertainment center that is already a fixture in Omaha, continues to grow its presence throughout the country, too.
“There has been a rapid expansion of ecommerce, and that has given some the perspective that consumers would be shifting away from brick-and-mortar stores,” Sullivan said. “But as sales rise for ecommerce, people are still going into stores and shopping in physical locations. There is a perception that one thing has to fall as the other rises. That is not ringing true in retail right now.”
And what makes Omaha such a good location for retailers looking to expand or open new locations? It’s a growing city with a steady influx of new consumers.
“Compared to the rest of the country, we have a low cost-of-living but our median household incomes are strong,” Sullivan said. “We have a good Midwestern mentality. We like to experience new things, and we have the disposable income to do that. If you are in San Francisco and your monthly rent is $3,600 for a studio apartment, you are not sitting down and getting together in restaurants. You are not paying for these new experiences. But here? People like to have those experiences. It’s a good recipe for retailers.”