Few cities across the country enjoy a commercial real estate market as steady as Omaha’s. Each year, this Nebraska city’s commercial real estate industry hums along, notching an impressive number of sales, leases and new development.
But what happens when a pandemic hits?
Turns out, Omaha’s CRE market stays steady.
That’s the consensus of the top commercial real estate pros serving this market. They say that the last 19-plus months have been challenging. But despite this, Omaha has proven resilient, and the city’s multifamily and industrial sectors have continued to thrive despite the pressures of the pandemic.
What’s Omaha’s secret? CRE pros here point to a pro-business government, a conservative nature when it comes to new development and a high quality of living that makes Omaha an attractive place for companies to locate.
And even in those commercial sectors hit hardest by COVID, Omaha continues to be resilient, say the commercial real estate brokers here.
Just ask Chris Mensinger, vice president with the Omaha office of Colliers. She said that Omaha never saw overly high vacancy rates in the office sector, even during the worst days of the pandemic. Today, that rate stands at around 10.6 percent for the Omaha office market as a whole, she said.
And retail, that other sector that has struggled so much in markets across the country? Mensinger said that Omaha’s retailers, though they have faced challenges during the pandemic, have adapted to the changing needs of customers and have been resilient throughout the last 19-plus months. Mensinger said that the vacancy rate in the Omaha retail market stands just a bit over 8 percent.
“People in Omaha are employed. Our unemployment rate is very low,” Mensinger said. “Because of that, people are spending money in Omaha, and that has helped the retailers.”
And Jay Noddle, president and chief executive officer of Omaha-based development company Noddle Companies, used the word “excellent” to describe the state of his city’s commercial real estate market today.
“Omaha has fared extremely well under the circumstances,” Noddle said. “We are seeing quite a lot of new development activity of all kinds.”
Local retailers overcoming the challenges
Ben Meier, vice president of brokerage services with Omaha’s The Lerner Company, also focuses on the retail sector. Like others, he said that while retail in Omaha has faced challenges, it has also been resilient throughout the pandemic.
“Omaha has fared as it has in general recessions in the past,” Meier said. “In the downturns that we have seen historically, the impacts in Omaha have been muted. That doesn’t mean there aren’t impacts. There are national impacts with the bankruptcies of retailers. But a lot of that was baked into the cake last year.”
And this year? So far, it’s been a solid one for retail, Meier said. Investors have taken notice, he said.
“This year has been robust,” Meier said. “We are selling retail investment assets. It seems that the coastal buyers are realizing that we don’t have the severe ups and downs here. Our ups and downs are slow and can be worked around. Investors like our market. Really, it’s this way throughout the Midwest. But in Omaha, we have been going like crazy the last nine months.”
Mensinger said that smaller retailers especially are expanding in Omaha today. This comes as many national retailers hold off on making their own expansion plans. This has left an opportunity for smaller retailers to move into spaces and locations that pre-COVID might not have been available to them.
The office market in limbo
There’s a similar dynamic in the office market. Smaller companies are seeing more of their employees returning to the office. Bigger, national companies, though, have largely pushed back the return of their workers.
That has left the Omaha office market in a type of limbo. As Mensinger said, companies that don’t have to make long-term decisions are hitting the pause button.
“We are seeing some short-term office lease renewals,” Mensinger said. “We are seeing one- to three-year lease renewals. A lot of people talk about the sublease market. We do see sub leases here. But as far as our market goes, sub leases are only 1.3 percent of our total office inventory. There aren’t many companies leaving their leases early here. People are holding in place if they can.”
So why has the vacancy rate in Omaha’s office market remained so low? Mensinger points to the more conservative nature of the Omaha commercial real estate market. The office market here hasn’t been overbuilt. While the vacancy rate in the office sector has risen during the pandemic, it’s only jumped from 7.4 percent to 10.6 percent.
“We are a strong market, but we are conservative builders,” Mensinger said. “We don’t build a lot of office space on spec. Our office developments have a significant amount of square footage secured by the time they deliver.”
The pandemic has provided an opportunity for some companies to improve their office space. As Mensinger says, some companies have moved from Class-B office space to Class-A, while others have made the jump from Class-C to Class-B space.
At the same time, office rents in the Omaha market have remained steady. This, too, has helped companies that have wanted to move to a higher class of office space.
“We have had a lot of companies with under 100 employees return to the office,” Mensinger said. “When you don’t have as much density, you have the luxury of coming back earlier. A lot of our national companies might require people to stay home or work fewer days in the office.”
Noddle, whose company has been working on several office projects in Omaha throughout the pandemic, said that the office tenants with whom he is working have requested no major changes to the layout or design of their office spaces.
This might come as a surprise. Brokers in some markets have reported that companies are looking to rework office space to allow for more space for employees and to meet the demands brought on by hybrid working arrangements.
Noddle, though, says that this doesn’t seem to be the case so far in Omaha.
“I really don’t think we’ll see any major changes in the way office spaces are designed in Omaha,” Noddle said. “I think most of the office buildings seeing big changes are the bigger, taller and denser properties. In the type of office space we have in Omaha, I don’t think we’ll see major changes.”
The retail market is in flux here, too. Retailers in the Omaha market weren’t forced to remain closed for as long at the beginning of the pandemic as they were in other markets across the country. That helped retailers survive those earlier months.
And Mensinger said that people in Omaha are shopping and spending money again, which has provided another boost to retailers.
The challenge? Retailers in Omaha, as they are across the country, are struggling to find enough workers.
“We are hearing a lot now that restaurants are having trouble attracting people to work the hours,” Mensinger said. “Our unemployment rate here is at 2.7 percent. That gets challenging. It’s one thing to be open, but you have to be able to staff your restaurant or shop.”
Another challenge in Omaha? Downtown remains quieter than outlying neighborhoods or suburbs, largely because so many bigger companies haven’t brought their workers back to the office. This has a ripple effect, hurting the retailers and restaurants located in the center of the city.
“All of us are living in a world now where we don’t fully know what is going to happen next,” Mensinger said. “My hope is that people do start to return to the office. That helps with daytime traffic in the office and retail sector. With the Delta variant we are all a little unsure now. But I do think the attitude in Omaha is a positive one. People feel that we will rebound quite successfully.”
A development boom?
What else is impressive about Omaha during the pandemic? Noddle points to the development boom currently taking place in the city. Omaha is fortunate enough to be home to several major development projects that are either about to launch or already under construction.
One of the newest is Block 180, planned for the Southwest Corner of 180th Street and West Dodge Road. This mixed-use project, which Noddle has just announced, will include office, retail and multifamily. Noddle Companies is also planning to include experiential spaces, with parks, dog parks, pickle ball courts, outdoor yoga space and fitness areas.
Noddle is working with Broadmoor Development Company on this project and expects construction to begin in the late spring or early summer of 2022.
The Crossroads Development, planned to open in 2024, is another major development project taking place in Omaha. This mixed-use project, being developed by KJ Crossroads Venture LLC, made up of Omaha’s Lockwood and Century development companies, will bring new shops, offices, restaurants, apartments and entertainment options to the former Crossroads Mall at 72nd and Dodge.
There’s also Project NExT, a public-private partnership to create a fedreal health security disaster response space at the University of Nebraska Medical Center during the next 10 years. The City of Omaha this March signed a $93 million Memorandum of Understanding to help support the multi-billion-dollar project.
Noddle Companies is also working on the Builder’s District project that will cover eight square blocks in downtown Omaha. Noddle started this project with the completion of the corporate headquarters of Kiewit Corp. Noddle’s additional plans call for another office building and apartment project in this district.
“We are extremely busy when it comes to new development,” Noddle said. “Industrial development is so robust, with everything from data centers and distribution centers to warehouses. The industrial segment has been very active.”
The big challenge with any development project is the long lead times for materials. Noddle said that it’s difficult to get materials on a job site on time today.
“If it is a big heavy industrial building, you don’t have steel or concrete for nine months,” he said. “That makes planning very difficult.”