“Despite the slowdown in the pace of the national economic recovery, the Omaha office market continues to outperform the nation as a whole,” states Colliers International in its second quarter report on the local market. That’s not altogether surprising, given that the Omaha area economy is outperforming the nation’s. According to Moody’s Economy.com, employment in office-using sectors, measured by the year, has run positive since 2010.
So, accordingly, has net absorption in the 17.5-million-square-foot general purpose, multi-tenant office market. While the numbers are less than spectacular (there has been a “lack of depth” in leasing, reports Colliers International), net absorption has been positive overall since 2011. Amid no newly delivered competitive supply, Reis put the first half 2012 total at 62,000 square feet; July-August followed with 58,000 more alongside the completion of 60,000 square feet in the first phase of the Northstar Financial Services building in southwest Omaha. Also delivering (in August) was a 208,000-square-foot single-tenant property for CSG Systems. However, explains Colliers, that completion entails the evacuation by CSG of a roughly equivalent volume of space in North Park (in the metro northwest), “which will increase vacancy substantially” in that area.
In addition, another challenge is on tap: the April 2013 completion of the new, 475,000-square-foot TD Ameritrade headquarters project in the Old Mill area in Reis’ Far West submarket will result in the firm’s evacuation of spaces across the metro area. And the 131,225-square-foot corporate headquarters building for Gavilon, which broke ground at 14th and Dodge Streets in September, entails the evacuation of space at the ConAgra campus, observes Colliers. The 105,000-square-foot Westroads Office Park project at N. 102nd and Nicholas streets, described by Colliers as “the only new multi-tenant office building under construction,” broke ground in June, Reis reports. Major projects in the pipeline, meanwhile, include 700,000 square feet of office space at the Sterling Ridge development (see Special Real Estate Factors).
Vacancy ended the latest quarter at 15.2%, down 40 basis points for the period, down 50 year-over-year, Reis reports. August closed at the same rate. Rent growth, negative overall for three years, turned positive in 2011 with gains at about 0.5%. Little improvement has followed. At $17.12 psf and $13.41 psf, asking and effective averages for the second quarter were unchanged from the quarter before and were both down 0.1% year-to-date. Each rate had lost an additional penny by the end of August. A better performance, however, should follow.
Reis expects a flat performance for demand and occupancy over the remainder of the year, while average lease rates show small gains. Growth rates for the year are projected at 0.3% and 0.5%, asking and effective. The year 2013 should be a more active one with moderately better rent growth. “Given the scarcity of Class A space, developers may consider speculative new buildings in the near future,” notes Colliers. “Barriers to increased depth of activity” should remain in place.