New Construction Starts, Low Vacancies Further Omaha’s Industrial Success
Similar to the past couple of years, it is difficult to identify one or two items to highlight about the Omaha industrial market. Although the most impressive improvement might be the amount of new construction starts in 2016, factors such as sales prices per square foot, number of overall transactions, average asking rents, vacancy rates, landlord concessions all trended in a favorable direction for owners of industrial properties.
This has been a staggering year- over-year trend, which has led many industry professionals to ask the same question: Is the market becoming too hot?
User-driven projects over 100,000 square feet were the highlight of 2016, with multiple large projects breaking ground. Those users included Thrasher Inc., a rapidly growing, Omaha-based basement waterproofing and foundation repair company, which broke ground on its 209,000-square-foot office and warehouse facility located near 120th Street and Valley Ridge Drive; and Oxbow Industries, a Murdock, Neb.-based manufacturer, that is working with a developer on a new 140,000-square-foot facility at 150th Street and Schram Road.
However, new construction starts for large projects were not the only storyline. Companies including Rotella’s Italian Bakery (6949 S. 108th St.) and State Steel (13413 Centech Road) made notable expansions to their existing facilities, adding 57,800 square feet and 53,200 square feet, respectively.
Additionally, Dr. Pepper (13232 Centech Road) opened a new 73,173-square-foot warehouse and Pierson Wireless (11414 S. 145th St.) moved into a 58,421-square-foot office and warehouse space. Although speculative construction was a part of this new construction, it was certainly the exception rather than the norm.
Low vacancy streak
Once again, the Omaha industrial market ended the year with an eyebrow-raising low vacancy rate of 3.2 percent, according to data research firm Xceligent. This marks the 13th consecutive quarter that the local industrial market has posted a vacancy rate lower than 5 percent. That streak is astounding considering the market has experienced over 1.3 million square feet of new construction since 2015, excluding many of the projects listed above that do not become added to the inventory until they are officially occupied.
There were many large lease transactions in 2016, but interestingly many of them did not account for added absorption. Tenants vacating properties were almost immediately replaced by new tenants.
There were three great examples of this trend:
• Outlook Nebraska leased 54,000 square feet at 9995 I St.;
• Henningson Foods leased 55,000 square feet at 10025 I St.;
• New Star Sourcing & Services leased 60,000 square feet at 10234 S. 134th St.
These available spaces were all backfilled by replacement tenants with very little exposure to the market. In terms of big-picture meaning, these large deals did not even show up on quarterly absorption reports.
Spec on the rise
Going forward, the Investors Realty industrial team sees the pipeline of new construction continuing. As rental rates continue to increase in existing new construction, speculative construction in particular will continue to improve its viability. With several speculative projects in the pipeline, we predict that users in older, potentially functionally obsolete properties will begin to contemplate newer constructed properties. These users will trade in their lower ceiling heights or older, less efficient properties for more updated spaces.
As the infrastructure continues to expand near Highway 50 and Highway 370, we expect to see continued industrial development along that corridor, hopefully meeting the pent-up demand left by years of little to no new construction.
In short, the Omaha industrial market might not be getting too hot. In fact, it might be just getting started.
—By Kevin Stratman, Industrial Broker, Investors Realty Inc. This article first appeared in the April 2017 issue of Heartland Real Estate Business magazine.