Omaha’s apartment market continues to be fundamentally strong and attractive to national and regional investors. According to Reis, Omaha’s asking rental rates have increased in every quarter over the past eight years, and vacancy remains low at 5.6 percent as of the end of 2018.
Historically Omaha has had low vacancy. The 4.6 percent average vacancy rate over the past decade and 4.4 percent over the past five years is in line with the five-year national average of 4.5 percent. Looking forward, Reis expects the vacancy rate in 2019 to remain steady at 5.6 percent, and Colliers International expects the vacancy rate to dip slightly during 2019.
Ed Fleming, Colliers International
Remaining affordable
Not surprisingly, the relatively tight market, coupled with new construction, has continued to drive rents higher with asking rental rates growing at a strong 5.1 percent during 2019, according to Reis. Colliers, as well as local developers we surveyed, expect that rents will continue to grow in 2019, but at a more modest level, which we expect will be very close to Omaha’s average annual increase of 2.7 percent over the past 10 years.
Importantly, Omaha also continues to have a relatively low cost of living for apartment dwellers with an average asking rental rate of $909 per unit, which is some 30 percent below the national average. Stated differently, “wallet share” devoted to rent in Omaha is just 16.1 percent, compared to 21.7 percent in Denver, 19.5 percent in Minneapolis and 16.6 percent in Kansas City, according to Berkadia’s national research report. As noted by SmartAsset, Omaha is the No. 2 city where renters can afford to live alone.
Supply/demand dynamics
According to the Greater Omaha Chamber of Commerce, there were 1,041 multifamily units permitted across the Omaha metropolitan statistical area (MSA) in 2018, down significantly from the 2,116 multifamily units permitted in 2017. The 1,041 multifamily units permitted in 2018 were down 10 percent compared with the 10-year average of 1,149 multifamily units permitted from 2009 to 2018. With 2017 as the high-water mark over the past decade, developers paused in 2018, which allowed unit absorption to catch up with supply, resulting in a slight drop in vacancy during 2018 as well as the aforementioned rent growth.
According to the latest demographics, Omaha’s estimated 2018 population is 942,553, which has been a 1.2 percent average growth rate over the past 20 years. Digging into those numbers, Omaha has grown at an average of 7,720 people per year over the past decade, which has then translated to an average of 1,062 renter households added per year using pure household size numbers.
However, assuming that rent households are on average less than 2.5 people per household, it becomes quite clear that the 1,149 average multifamily units permitted over the past decade are easily absorbed by the renter households created, which then leads to the highly balanced supply/demand and stable vacancy. As with all growth, there are always pockets that become temporarily overbuilt, but the Omaha market does a great job of pausing on the construction side while the demand catches up to the supply.
Strong local economy
As noted above, Omaha has had an extended run of steady, albeit modest growth over the past 20 years. Much of that growth has been driven by new jobs against the backdrop of low unemployment. More specifically, the Omaha MSA has had a net increase of 12,500 employed workers at the end of 2018 compared with the end of 2017 (a labor force growth of 1.6 percent since year-end 2017), and the unemployment rate is a low 2.7 percent at year-end, according to the Greater Omaha Chamber of Commerce.
With a strong and diversified economy, Omaha has been increasingly seen as a city of choice for both employers and employees as ZipRecruiter ranked Omaha No. 1 “Best City for College Grads” in 2018 and Livability ranked Omaha No. 1 “Beyond Silicon Valley — Up and Coming Tech Hotspots.”
New construction trends
Like many growing urban areas, leasing trends across Omaha, and especially for apartments close to downtown Omaha, are driven by millennial-focused amenities such as coworking spaces, coffee bar/food/social interaction, fitness, package storage areas and proximity to urban amenities that enhance the work/live environment.
A great example of this trend is the large 732-unit Atlas project, which features all of the above, and for which the developer NuStyle has had to accelerate unit deliveries to keep up with demand. And across all of Omaha, renters continue to be focused on higher-end unit finishes, washer/dryer in units and covered parking, along with proximity to employment, restaurants, shopping and other amenities, including the growing need for on-site package storage areas.
Demographically, Omaha is also seeing the shift to “renters by choice” increasingly hitting people who are 40+ years old. These renters are electing to sell their houses and move into mostly newer, high-end apartments with full amenity packages and either attached or underground parking. This group of renters is also often attracted to smaller apartment communities (under 150 units) where there seems to be a stronger sense of community and where ease of lifestyle is more important than homeownership.
As a result of this dynamic, some complexes have experienced less turnover, and in some cases are heading towards de facto “55+” communities. Omaha is not unique in this trend, as a recent report from RealPage indicated that apartment resident retention hit an all-time high of nearly 53 percent in 2018 on initial lease renewals.
New construction is moving along in Omaha with the final 264 units at the Atlas expected to deliver over the next three months. Other projects include Vann Properties’ 372-unit Antler View, the Giddings Group’s 283-unit Duke of Omaha property, Broadmoor Development’s 241-unit Aksarben Apartments Phase III project and J Development’s 162-unit Centerline.
The two biggest projects permitted in 2018 were Burlington Capital’s two Vantage deals: the 294-unit Vantage at Stone Creek by 156th and Ida streets and the 288-unit Vantage at Coventry by 204th and Q streets. On the smaller-size front, Calabretto Building Group will be finishing its 18-unit, duplex-style Loveland Flats in 2019. This is an excellent example of a smaller, high-end community that is well located.
Strong investment market
For the Midwest, 2018 apartment capitalization rates were 6.3 percent, down 20 basis points from 2017’s 6.5 percent, according to Real Capital Analytics. Omaha experienced stable to slightly lower capitalization rates on apartment transactions during 2018. The stability of the Omaha market, coupled with the additional yield that buyers can command locally versus larger cities, has continued to make Omaha an attractive place for local, regional and national investors.
— By Ed Fleming, Executive Vice President, Colliers International. This article originally appeared in the April 2019 issue of Heartland Real Estate Business magazine.