What does the Lincoln, Nebraska commercial real estate market have to offer? Quite simply it has land, room to grow, affordability and a centralized location. Pair these attractive and unique features with an educated workforce in a culturally diverse community and the answer becomes clear. Lincoln’s commercial real estate market has a lot of potential.
Despite Lincoln’s small size of approximately 300,000 people, it is experiencing the same challenges and triumphs as the bigger metropolitan areas.
One of the biggest challenges in the Lincoln market is the low supply of industrial space in a high-demand environment. The industrial vacancy rate as of year-end 2021 was 1.6 percent. Any new product that comes on market is leased quickly and the per-square-foot selling price is trending up with a 31 percent increase in just three years.
Unfortunately, in the Lincoln market, the value of new industrial construction building permits has been trending down over the last five years. The rising cost of construction makes this trend even more significant; many developers are unwilling to invest in speculative product without the certainty that tenants will pay the rental rate necessary to provide an adequate rate of return.
One local developer, Las Brisas Land Development Co., has taken on this challenge by constructing around 500,000 square feet of spec industrial product over the last few years. This gamble has paid off; all this product has been leased or sold with little if any time on the market.
Fortunately, Lincoln has had forward-thinking city planners who have created plans and the required infrastructure necessary for growth and progress. Construction on a bypass highway known as the “south beltway,” which will provide convenient access to interstate and highway systems, is nearing completion.
Anticipation of this bypass has already begun to create new commercial areas from former agricultural land thus providing growth potential not readily available elsewhere. Hopefully this will provide more opportunities for the industrial/flex space product that Lincoln needs.
Multifamily and residential condos continue to be a safe bet in the Lincoln market. The average price per unit for multifamily has increased almost 60 percent from three years ago. Construction continues to follow this trend; the value of new construction building permits has increased by 45 percent indicating substantial growth throughout the city.
These figures are impressive but don’t even account for the transformation happening in the Central Business District (CBD). Lincoln’s CBD is located between the State Capitol and the University of Nebraska’s main campus, and it’s a Big 10 university with 50,000 students. Historically, large, multi-tenant office buildings were occupied by private industry, state offices and banks. Due to multiple factors such as consolidation, downsizing and suburban flight, Lincoln’s CBD is undergoing a transformation from office use to residential use.
In the past year, almost 13 percent of the total CBD office space has been converted to student housing and residential condos. Trinitas Ventures has begun construction on a $60 million project to build a two-tiered student housing apartment building on a site of the former home of the Lincoln Journal Star newspaper. It will have 321 units and is expected to open in the summer of 2023.
The retail sector of Lincoln’s commercial real estate market is holding steady with a vacancy rate of 6.6 percent. A good portion of new retail businesses are small, locally owned endeavors. This has been fueled by a change in consumer preferences to support local business and a greater social acceptance of the emerging CBD market.
The hospitality industry in Lincoln is facing staffing challenges like other metropolitan markets. Despite this challenge, Lincoln has a large hospitality development underway. Warhorse Gaming LLC is constructing a $220 million casino/hotel following the state’s signing of the first-ever commercial casino gaming bill in May 2021. This is the first development of its kind in this community. Upon completion, it is expected to create over 900 jobs.
Office is a wild card
Office is still the wild card in the Lincoln market as the long-term effects of shadow space and the pandemic are still uncertain. Several larger employers are still working completely remotely or semi-remotely. It is unclear if these companies will decide to return to their current space, downsize or expand.
One industry that appears to be consistently downsizing its office space is the banking industry. There is a trend of regional and national banks closing branches and reducing their office space by as much as 70 percent.
Even with the current uncertainty and developers’ focus on multifamily and residential condos, new office construction persists. Bryan Health, a major regional healthcare provider, has begun construction on a 140,000-square-foot April Sampson Cancer Center, which will be ready to service patients in 2023. NEBCO Inc., a local developer, is nearing completion on its $25 million multi-tenant office building in downtown Lincoln.
Lincoln’s commercial real estate market remains stable and steady; the biggest problem is generally more demand than product. Macro-economic conditions including inflation, rising interest rates and low unemployment are challenges that directly impact the market and the trajectory of its trends.
Unlike many metro areas in the United States, Lincoln is unique as there is space for the city to grow, making it a prime location for development. The state invests in infrastructure, providing quality roadways necessary for transportation and logistics. The quality of life is high with a relatively low cost of living.
These qualities have contributed to making this the headquarters for several multi-national firms and successful start-ups. The stability of Lincoln’s commercial real estate market has persisted in the worst of economic times and is expected to continue to do so.
Mike Ball is a vice president of sales and leasing for NAI FMA Realty. This article originally appeared in the April 2022 issue of Heartland Real Estate Business magazine.