Kevin Stratman, Investors Realty Inc.
The Great Recession of the late 2000s seemingly halted speculative construction. During the rebound of the early 2010s, the vacancy rate began to steadily decline. Tenants started to absorb excess space at a healthy clip. All of a sudden, the market has begun to face two overwhelming challenges: virtually full occupancy among rental space and few readily available land options to build new product.
Space Users Stay Active
Industrial vacancy in Omaha has continued to plummet, ending 2014 at a 3 percent vacancy rate. Both large national companies and local businesses have accounted for the healthy absorption of space. Sergeant’s Pet Care Products (which built 349,680 square feet), Airlite Plastics (71,272 square feet), and Election Systems & Software (40,000 square feet) all increased their footprint in 2014.
Additionally, several smaller transactions have occurred this year. Companies such as FleetPride, Westside Community Schools, Mid-Plains Power, Ferguson Enterprises and Midwest Respiratory & Rehab all have been involved in transactions of 10,000 square foot or higher. Collectively, these smaller transactions have had a much greater impact on the market than three or four large deals.
Most of the construction in 2014 focused on two facilities: an approximate 350,000-square-foot facility for Sergeant’s Pet Care Products near 126th Street and West Giles Road, plus Lavigne Enterprises’ speculative 90,000-square-foot flex warehouse located at 13205 Lyman Drive.
Sergeant’s Pet Care Products built a new distribution facility in order to relocate its operations from Memphis. Lavigne Enterprises built its new facility on a speculative basis and was able to almost immediately secure a long-term tenant in third-party logistics.
Although there is currently a large amount of construction occurring in the industrial market, the impact won’t be felt until the projects are completed because they are not added to the market’s total inventory before they are delivered. Republic National Distributing Co., The Waldinger Corp. and Titan Machinery are all in the process of constructing new facilities. Speculative construction is taking place as well, with KVI’s Portal Plaza Building 3 and other minor speculative projects.
Shovel-Ready Shortfall
Despite the growth of locally based companies and national firms with a presence in Omaha, what is concerning is the rapidly diminishing availability of shovel-ready sites. In 2014, multiple businesses and developers that have long owned industrial ground began construction. Many other users, mostly small in size (10,000 square feet and higher) began to acquire new industrial sites.
Given the fact that the last new industrial park was completed over a decade ago, the supply of available land seemingly disappeared overnight. Currently, Investors Realty is tracking several large users hunting for new industrial sites in the market. With few available rental options and a lack of available land for companies to grow into, several large businesses are feeling pressure to find a solution.
The good news is that there are three industrial parks in various planning stages that will meet this demand. Located along I-80 in suburban Sarpy County, these sites will offer easy access to lots that accommodate both small and large users. Most importantly, these industrial parks will give the market something it has been lacking for a number of years — shovel-ready industrial sites. In all, the three industrial parks are estimated to be adding roughly 250 acres to the industrial land inventory.
Glass Three-Quarters Full
In spite of the challenges, the industrial team at Investors Realty remains optimistic about the Omaha industrial market. The Greater Omaha Chamber is working with municipal leaders, developers and space users to expand existing infrastructure to meet the market’s development needs.
Let’s be clear, this is a good problem to have. Business is strong and companies are hiring. The outlook for the future of Omaha and its industrial market is better than ever. Rather than being an afterthought, as the industrial sector seemed to be for the last several years, many investors are starting to realize the unmet opportunity. It will be exciting to watch as the new industrial parks come on line over the next year.
— Kevin Stratman, Industrial Specialist, Investors Realty Inc. This article originally appeared in the April 2015 issue of Heartland Real Estate Business magazine.