The real estate market in Lincoln has undergone many changes over the years, and the pandemic shifted the status quo once again. Residential real estate is experiencing a lack of product and prices are rising. At the same time commercial buildings are selling quickly.
One thing is certain: it is a seller’s market and growth in and around Lincoln is expected to continue.
For the last several years, mortgage rates have maintained record lows. However, the rates in the previous weeks and months have made a steady climb upward, now surging to more than 4% for conventional loans. Prices for new homes and commercial buildings are also increasing. Despite rising costs, the real estate market is hot in Lincoln.
TJ Gibbons, assistant managing broker for Nebraska Realty, shared that the seller’s market in Lincoln is very strong.
“What we noticed in Lincoln was that COVID almost ‘boosted’ the seller’s market in a sense,” he said. “What I mean by that is, that since people were put in positions to stay at home, they started to really notice the things they didn’t like about their home – whether it be functional obsolescence or simply not having enough space for their family.
“So, they decided they needed to make some sort of change and with interest rates as good as they were, selling their home and buying a new one was a popular option. Last January we saw about an 11% increase in average closed price in all home types from the previous year. Prices are still on the rise, and they look to continue for the near future.
Unless rates hit irrationally high percentages, the market will continue to be a strong seller’s market.”
Because of the current selling landscape, sellers have the advantage. But with that, it is important to remember that if you are considering listing your home for sale, you will need to be ready to act quickly to make your next move. Once a home hits the market, sellers are experiencing multiple offers right away, and that means they need to have a game plan on where to go. With low inventory, sellers need to be prepared to jump into the competitive buyer’s market with confidence.
Tyler Bebout, owner of Modern Real Estate, said, “The residential real estate trend is to list your home and you have all the power. With the lack of homes for sale, the sellers control the market. As agents, we must go in with a plan and a strategic way to get the very best for our sellers, while making sure we can live up to every offer we receive. A rate increase will hopefully correct the supply and demand we are seeing.”
The ‘hot’ market that we are experiencing in the area poses some challenges, not only for prospective homeowners looking to purchase a property, but for agents, too.
“Buyer’s agents are up against sometimes upwards of 10 or 20 competing offers,” explained Gibbons. “It’s really crazy to watch this unfold at really all price ranges.
“For listing agents, one struggle is trying to keep all the competing offers in order, which could be seen as a great problem to have. The rising interest rates are almost increasing the number of buyers out there and creating more of a frenzy because people are wanting to secure their new home at as low of an interest rate as possible before it’s ‘too late.’”
Looking ahead, Gibbons is hopeful that people will continue to want to put down roots in Lincoln.
“I think with the growth of Lincoln and the way the market has trended and projects at this particular point, I see this being another year of the seller with prices still gradually going up across the board,” he said.
Bebout noted that the outlook for 2022 will likely maintain the same trajectory for home sellers. He also encouraged buyers to do their research to find an agent that knows the area and has the gusto needed to walk them through the incredibly competitive home search and buying process.
“Buyers will need to be with an agent who can supply them with the right facts and information to show them on how to get the house they want and not just settle for the house that they win in a bidding war,” he said. “Interview, interview, interview. When making, more than likely the biggest financial decision in one’s life, you should not be using a mediocre agent. Go with what the professionals here in the current market and environment are saying. Your cousin Bob in Ohio does not have a pulse on what is going on here in Nebraska – sorry Bob.”
Despite the huge ups and downs that the pandemic has thrown at businesses around Nebraska – and the country – the commercial real estate market in Lincoln has remained strong.
Jared Froehlich, commercial advisor for NAI FMA Realty explained, “The Lincoln commercial real estate market never really skipped a beat. Vacancy rates didn’t move much, lease rates didn’t decrease, and purchase prices went up. We have continued to see commercial real estate performing well overall. Some trends we’ve seen include interest rate increases, high levels of inflation, high cost of construction, and major construction delays. We’ve been seeing a greater demand and a limited supply for south Lincoln commercial real estate.”
He noted that while there has been some downtown office space that has been vacant or viewed as ‘shadow space’ (leased or owned, but not occupied), industrial space has been in high demand.
“Industrial vacancy rates are at an all-time low making warehouses nearly impossible to find,” Froehlich said. “The industrial and multi-family asset classes have continued their upward trajectory and have the best performance of all assets.”
Robin Eschliman, president of Eschliman Commercial Real Estate, echoed the statement that ‘shadow space’ in the downtown area is something that commercial real estate professionals are grappling with. They estimate that 40 to 60% of the spaces are rented to corporations, but not currently in use.
“This has had a negative impact on restaurants and retailers dependent on downtown workers and is very concerning longer term,” she said.
Ted Eschliman, VP of leasing and sales at the company, agreed that office and retail spaces have struggled, but he is hopeful that things will begin bouncing back.
“Office and retail [commercial space] has been lethargic, but we have been seeing a rebound in the latter,” he said. “Office is doing some soul-searching now with the success of telecommuting, home officing and a need for proper ventilation and space. Large officing is suffering, but small, co-share is thriving. There remains a human need for face-to-face and interaction, and while it will never completely go away, employees can do exponentially more with technology and video.”
Ted Eschliman also reported that industrial markets are growing.
“The industrial market is vibrant – anything to do with trades, like building and distribution, is experiencing rapid growth,” he said.
Robin Eschliman noted that those who are looking to sell warehouses are in a good position to get buyers quickly.
“Sellers of some product types, such as warehouses, can expect fairly quick turnaround on a sale, so if they are occupiers who plan to move to another location, they should have the new location in place before putting their building on the market,” she said.
However, commercial agents explain that construction is one of the main things that is impacting the companies looking to build commercial space right now.
“High construction costs due to price increases in materials and supply shortages are making building formidable for many,” Ted Eschliman said. “This puts pressure on the availability of second-generation property, and inventory scarcity becomes a greater challenge. Still, the economy is good, and businesses locally remain strong.”
But, if a business is planning on remodeling a space or building a new commercial building, patience is key.
“Construction prices have ultimately driven building values for many years, and with inflation it is even more so now,” Robin Eschliman said. “Construction costs are the number one reason most transactions stall. Delays are common, and construction timelines are longer.”
Froehlich reiterated that while the outlook for 2022 commercial real estate remains hopeful in the way of growth, the construction costs are bound to throw a curveball – not just locally in Lincoln, but the entire state as well.
“The high cost of construction along with the supply chain delays has also contributed to the lower supply of existing product,” he said. “These trends can be found throughout all of Nebraska.”
Robin Eschliman also noted that as interest rates continue to rise, this could pose a different scenario for commercial agents: less building sales and more leases.
“Interest rate hikes may cool inflation but are certain to have a negative impact,” she stated. “Most commercial real estate agents have experienced record sales because of attractive interest rates and packages offered by the Small Business Administration as an incentive to invest during the pandemic. However, one effect of higher interest rates is that business owners are more likely to enter into leases, and this will be good for landlords.”
Tips for Buyers and Sellers
There are two resonating themes in the real estate industry right now: teamwork and patience. Buyers, sellers, and agents, in both the commercial and residential side of the business, will need to continue to persevere through the challenging waters of high demand and limited supply. Working together to find the right property is something that will make the process easier.
“It sounds self-serving, but don’t go it alone,” Ted Eschliman said. “Use a professional. A Realtor will know what dangers lurk in bad deals … communication is crucial in any transaction, and both parties are served when goals of buyer/seller, tenant/landlord are clear and transparent.”
Gibbons noted for sellers, keep it simple: now is the time to sell. And for buyers, be ready to put your best offer out there and be open to being creative.
“Find yourself a Realtor that you trust to work their tails off on your behalf and give you the honest counsel you need throughout the process,” he stated. “You also need to be prepared to throw your best possible offer at any house you really want. You may want to consider looking at homes that are in a lower price range that could maybe use a little TLC so you have more buying power and you have the ability to create some sweat equity in the long haul. For sellers … find yourself a realtor that you mesh well with and one that you know will have your best interest at heart and will negotiate for the best on your behalf.”
It is normal to feel overwhelmed when considering jumping into the ever-changing waters of real estate – especially if it is something that you have never done before. That’s why surrounding yourself with a team that you trust is important. Find a professional that will answer your questions and advocate for you. The key is remembering that people are the backbone of the real estate industry and investing time in cultivating relationships between agents, buyers, and sellers is one of the most important steps to successful transactions.
“Commercial real estate is a people business,” Froehlich said. “The best and most successful commercial real estate decisions happen when all parties can work well together and when everyone understand the needs of the other parties. One tip is to ask questions which will help uncover the needs and goals of everyone involved.”