By John Dickerson, OMNE Partners
Our Omaha-area industrial sector has come through the pandemic very well, compared with other commercial sectors. We have not had to work out many rent payment plans with tenants, and industrial users going out of business have been minimal.
Omaha has survived and come out of 2020 well economically. Our unemployment rate is the second lowest in the country. Our cost of living has also been lower than most other major cities in the Midwest. This low cost of living carries over to real estate rental rates and operating costs.
Industrial leasing has been quite good in Omaha for years. Our vacancy rates have been below 5 percent for a number of years and currently have been about 3.5 percent. By reviewing spaces for lease on Crexi, an internet marketing service, there are about 120 properties that I identified with space available with a total of over 3 million square feet for lease.
Rental rates for industrial vary, of course, for typical reasons — age and condition of the property, location and how much a space/building might be finished in office or other special improvements. In Omaha, many flex buildings have users that have more office than storage/warehouse area, which increases the rental rate based on landlord’s improvement costs. Of course, cost of construction has driven up the costs to construct new buildings due to the price of labor and materials. Therefore, new buildings are getting higher rates.
There are not many properties in the market that have a rate lower than $5 per square foot. Rental rate ranges, with a minimum $5 per square foot are about 45 percent between $5 and $7 per square foot; 31 percent between $7 to $8.50 per square foot; and 24 percent are over $8.50 per square foot. Also, taxes and insurance rates are affecting triple net charges. Of course, taxes hit newer properties the hardest. Triple net charges are ranging around $2 to $2.50 per square foot or more.
Industrial sales have been reasonably good. However, there is a difference in sales of owner/user properties and investment properties. The majority of the properties for sale are vacant single-user. It is difficult to find leased properties for sale that would attract industrial investors. An investor may have to take a risk on buying a multi-tenant property that is half vacant. This can happen when the investor needs to satisfy a tax-deferred exchange.
Based on information by CoStar Group, in the Omaha area, there are currently over 25 industrial properties for sale. About half of those properties are priced in the $60 to $90 per square foot range. There are some that are priced below that range. But nearly 30 percent are priced above $90 and over $100 per square foot. This pricing is verified by resulting sales. Of 43 sales I found, 50 percent were sold in the $60 to $90 per square foot range; 32 percent were sold for over $90 per square foot; and 18 percent were sold below $60 per square foot.
I know that some parts of the country experience really low cap rates. However, in Omaha, the cap rates for industrial properties sold are in the 7.4 to 8.4 percent range, per CoStar.
Industrial land is available in a number of areas. The Omaha area includes, predominantly, two counties in Nebraska (Douglas where the city of Omaha is located, and Sarpy where Bellevue, Papillion, La Vista and Gretna are located) and one in Iowa (Pottawattamee) where the city of Council Bluffs is located, which is right across the Missouri River from downtown Omaha.
Council Bluffs, Iowa has industrial land along I-80 and I-29 that has developed well over the years and continues to develop. Bellevue, Nebraska is promoting more industrial development. There is currently a 55-acre parcel for sale that is planned for rezoning from agriculture to industrial use.
Western Sarpy, which includes parts of the cities of Papillion, La Vista and Gretna, has a lot of new construction. Most of the land parcels available are near main highways, including Highways 6, 50 and 370 as well as I-80. Another new industrial site is being planned in mid-northern Omaha in the area of 120th Street and Rainwood Road.
Pricing of land varies greatly, depending on whether the land is raw with no improvements, like the 55 acres mentioned, or whether the site has streets and utilities in place. Unimproved land has sold from 60 cents to $1.72 per square foot. Improved sites have sold lots at, mostly, between $4 and $5.50 per square foot.
There are many new industrial projects in Omaha, but the hottest area is in western Sarpy County in the area of Highways 6, 50 and 370, and I-80. This area had 20 new properties completed over the last year. The two biggest projects in the works are for Amazon and Facebook. Amazon is constructing a 2.1 million-square-foot facility on the northeast corner of Highways 50 and 370. Amazon is also planning a second 142,780-square-foot facility to the east of its major facility.
Facebook is expanding its data center, also in the area of Highways 50 and 370. Facebook already occupies 2.6 million square feet, and is adding another 1 million square feet. Facebook’s total 3.6 million square feet will be worth approximately $1.5 billion.
In addition to these major projects, there is more than 770,000 square feet of spec construction of buildings spanning more than 40,000 square feet. This is in addition to a few projects being built for a specific user in that size range. There are a number of other smaller projects being built in other parts of the Omaha area.
John Dickerson is executive vice president with OMNE Partners. This article originally appeared in the April 2021 issue of Heartland Real Estate Business magazine.