by Dan Rafter
There are plenty of reasons why Omaha’s commercial real estate market is performing so well. But Trenton Magid, executive vice president with Omaha’s NAI NP Dodge, says that diversity might be the key.
Omaha is powered by an especially diverse economy. The city and its surrounding areas don’t rely on just tech firms to boost its economy. Oil, energy or aviation aren’t the sole drivers here.
Instead, Omaha relies on a wide mix of industries to keep its economy healthy, everything from agricultural operations to financial institutions to tech start-ups. And that protects this city when the national economy falls into a slump.
“You think of Nebraska and you think that we are dependent on the agricultural economy and farming,” Magid said. “But in Omaha, those aren’t the only industries that we have. We have insurance companies and financial institutions. We have stepped up our game when it comes to the Silicon Prairie and technology companies. We not only have a lot of established technology firms with a presence here, we have start-ups, too. The schools we have here have done a great job of educating future tech employees.”
A tech boost
Magid is excited, too, about United Airlines’ new daily nonstop flight between Omaha and San Francisco International Airport. The flight, the first daily nonstop between the two cities in at least 25 years, began Sept. 8. A flight leaves each morning from Omaha at 7 a.m. and lands at San Francisco’s airport at 8:55 a.m. A return flight leaves San Francisco at 4:15 p.m and arrives in Omaha at 9:50 p.m.
Magid said that tech start-ups and other business owners have long sought such a flight.
“That creates easier access between the Silicon Valley in California and the Silicon Prairie in the Midwest,” Magid said. “Technology is important to our region. We have a major presence here by PayPal. Google has a huge presence in Council Bluffs, Iowa. We are getting more data centers here. We have the inexpensive utilities and the inexpensive land that these companies need. We have the workforce. Tech is a huge growth opportunity here.”
Tim Kerrigan, vice president for office, land and investment with Investors Realty, said that any commercial type, office, industrial, retail or multifamily, is doing well in Omaha as long as these builders are located in premium locations. Even high-quality buildings in secondary locations are seeing low vacancy rates, solid rents and plenty of attention from investors, Kerrigan said.
And Kerrigan only expects the Omaha market to remain strong in the coming months. As a broker who closes plenty of land deals, he sees daily the interest that developers have in acquiring a plot of Omaha earth.
“We are seeing a lot of land acquisitions,” Kerrigan said. “Everything starts with the acquisition of land. That foundation in land purchases is also strong right now. That gives me plenty of reason to believe that the solid market we are seeing in Omaha will only continue.”
Numbers from Colliers International back up the theory that Omaha’s real estate market is a strong one in all sectors.
Colliers reported that in the second quarter of the year, the vacancy rate for the industrial sector stood at a low 3.1 percent. This is far lower than the national industrial vacancy rate of 6.1 percent. According to Colliers, the largest industrial transaction for the quarter was the purchase of a 34,388-square-foot vacant building, the former 3E building in Omaha’s Northeast submarket.
Colliers reported that the Omaha office market saw positive absorption of 99,759 square feet for the second quarter of 2016, bringing year-to-date net absorption to 68,819 square feet, after the market saw negative absorption in the first quarter. The vacancy rate in the office sector dropped 40 basis points in the second quarter, falling to 11.6 percent, down from 12 percent at the end of the first quarter of the year.
What makes Omaha so strong today? Kerrigan says that some of the reasons are the same for any market that is performing well in the Midwest today.
The economy, both nationally and locally, continues to improve. Unemployment is down. And some companies are just now beginning to expand again.
“We are still seeing some of that pent-up demand,” Kerrigan said. “Companies put off purchases in the tougher economy we had a few years back. We are still receiving the benefits of that pent-up demand here now. I think corporate profits are solid. So businesses are enacting expansion plans, be it adding additional locations for retail or taking on additional business lines. They are acting on the expansion plans that they have had for some time now.”
That being said, which commercial sectors are performing especially well in Omaha? Kerrigan, like most commercial real estate pros, quickly cited the multifamily and industrial sectors.
Kerrigan said that there is still no shortage of buyers or tenants for multifamily or industrial properties in the Omaha region. And the interest is for just about every type and quality level when it comes to these two asset types, Kerrigan said.
Because the Omaha market is so strong, there are plenty of new developments that members of the brokerage community are looking forward to seeing move along. Kerrigan said that land acquisition is already underway for a high-quality new industrial park to be built in Southwest Omaha at highways 50 and 370.
“This is going to be an exciting project for Omaha,” Kerrigan said. “We haven’t had that much new product over the last seven or eight years. The limited new product we have had has been very popular. We are ready to see some new developments come out of the ground here.”
Kerrigan said that he’s not surprised that new residents are steadily moving into Omaha and its suburbs. The area boasts plenty of high-paying jobs, with a diversified economy based on a combination of such industries of agribusiness, insurance, financial services, tech companies and food services helping to fuel the area’s steady growth.
Kerrigan pointed, too, to the strong private leadership at the companies that call Omaha home. These leaders have been conservative in their decision-making, Kerrigan said, allowing them to ride out the tough economic times and come out the other end in solid shape.
Omaha is known, too, for the way the leaders of these private companies work so closely, and well, with government officials.
“There is a very strong public-private cooperative atmosphere,” Kerrigan said. “The leaders at our companies are just excellent. They have their eyes on the important things. We are lucky to have them. And then those folks partner up very nicely with government and quasi-government entities to maximize the positive results.”
When it comes to the near-term future of Omaha’s commercial real estate market, Kerrigan is just as optimistic as he is when assessing the current market.
Kerrigan sees little reason to doubt that the Omaha market will continue its strong performance for at least the next six to 18 months.
But after that? That’s when predictions can get a little dicey, but Kerrigan said that it is unrealistic to expect Omaha’s commercial real estate market to remain as strong as it has been indefinitely.
“You have to take any predictions with a grain of salt, but I feel confident that the Omaha market will remain strong,” Kerrigan said. “I am beginning to get a little concerned that beyond 18 months we could see a slowdown. We know that as a national and local economy, we have been in an expansion for a long time now. Based on statistical analysis, we have been in an expansion for more than 100 months. Any time you see an expansion percolating this strongly for so long, you know it can’t go on forever.”
Magid, too, predicts a strong immediate future for Omaha’s commercial real estate market.
“Given the diversity of Omaha’s economy and the number of strong companies here, I think that Omaha is good to go in terms of commercial real estate for quite some time,” he said. “We have already had eight strong years since 2008 when it comes to real estate brokerage. We didn’t feel as big of a hit as much of the rest of the country did from the Great Recession. We didn’t see as big of a drop-off. That really helped us. We didn’t see the big swings that much of the rest of the country did. I think it’s steady as she goes for the next couple of years in Omaha.”