Industrial Space Wanted: Developers Can’t Build Fast Enough

Industrial companies in the Omaha and Lincoln metro markets are finding square footage harder to come by these days, as developers race to catch up with demand.

Mark Norman, senior director of business attraction and expansion with the Greater Omaha Chamber, gave the overall situation a B+, a problem that has persisted for several years.

“About five years ago we did a comparison between the Omaha region and some of the other regions that we compete with on a regular basis,” he said. “We weren’t keeping up with what those other markets were doing in terms of growth on a percentage basis.”

Norman said the appearance of regional development firms in the local market has helped, but space availability remains thin due to the rise in demand for warehouse distribution space.

“We’re doing a lot better than we were even just five years ago, but as fast as they can build some of these new warehouse facilities, they’re being leased up before they’re done,” he said. “But we can still utilize more development because the demand is certainly there.”

Nationally, industrial sectors are booming – or could be – while available space is stretching at the seams. CommercialEdge reported last month the national vacancy rate for industrial space was just 4.1%, having dropped 30 basis points in just one month. 

Demand has prompted a construction boom, with more than 703 million square feet currently being built, looking to take advantage of premium asking prices. The group reported average U.S. in-place rent at $6.64 per square foot, up 5.5% year-over-year. The Omaha metro is no exception to this go-go development mindset, Norman said.

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“We’re seeing a very strong market of manufacturing projects out there,” he said. “Most of those are going to be in that 100,000- to 300,000-square-foot range. I’ll call them mid-size type projects, and those are the ones where you can easily find space out there.

“You’ve got the mega projects that have been knocking on the door looking in and those are harder to find a suitable location in our area. We do have a nice megasite now in Glenwood, Iowa, which is part of our metropolitan statistical area. That site is a certified shovel-ready site by the state of Iowa. But overall, it’s a challenge.”

Optimism Fuels Space Shortage

Christian Jensen, associate with Cushman & Wakefield/The Lund Company, said more companies are looking for space to grow into than in the past, another sign of the optimism concerning domestic manufacturing.

“Many tenants are looking for larger footprints to accommodate growth,” he said. “Industrial warehousing with good interstate access is in highest demand. A vast majority of tenants are seeking a minimum clearance height of 32 feet. Additionally, tenants are searching for properties that can accommodate multiple docks and drive-in door needs.

“Industrial product in general is in extremely low supply, historically. Omaha’s overall vacancy rate is currently right around 3%. Tenants need more space now, however delivery timelines are being pushed to 2023 to 2024 as lack of infrastructure in place has been a challenge for many developers.”

Jensen said areas in high demand  include the Sarpy West submarket, offering direct access to Nebraska Highway 370 and Interstate 80. 

“White Lotus Group, R&R Realty, NewStreet Properties, OPUS Group, GreenSlate and McNeil Company have all made significant contributions to the current and upcoming industrial market in Omaha and Council Bluffs,” he said. “Roughly 2 million square feet of industrial product is slated to be completed and available by second quarter of 2024. In addition, White Lotus Group is developing over 1 million square feet between three industrial warehouses in Lincoln, Nebraska.” 

Lincoln Squeezed

Marc Hausmann, associate broker with NAI FMA Realty said every square foot helps, as there is effectively no industrial vacancy in the Capital City.

“Lincoln’s industrial market is tight as the demand for space is high and vacancy rates remain historically low at 1.3% for the first half of 2022,” he said. “Basically, there is no excess of any warehouse, industrial or manufacturing space in Lincoln.

“The highest demand in the Lincoln market is for smaller-type bays of 1,500 to 2,000 square feet, contractor-type bays. On the flip side, there is also demand for larger spaces, 75,000 to 100,000 square feet with cross-dock capabilities.”

Given this scenario, recently completed projects have filled quickly, or are in the process of doing so. Hausmann noted in particular a 150,000-square-foot warehouse at 2155 NW 12th St., already full, and a 228,000-square-foot warehouse under construction at 4455 NW 14th St. that’s under negotiation for spaces. He also pointed out a 1 million-square-foot future project slated for 56th Street and Interstate 80 that would help, but likely not solve the city’s industrial space situation, with more new inventory facing major hurdles.

“Lack of available and appropriately zoned land is a major issue,” he said. “Developers and the city of Lincoln are working together to get faster permitting and zone changes to meet the demand. Any and all parts of town are in short supply.”

Can’t Build Fast Enough

The profile of companies seeking industrial space run the gamut from traditional manufacturing to companies in industries you might not expect, said Mike Homa, president of R&R Group’s Nebraska Division. As such, tenants are seeking flexibility in such a space, enabling them to customize it to their needs.

“We’re seeing an unprecedented demand for Class A warehouse space that can serve a variety of roles,” he said. “The traditional users looking for storage space or space that accommodates light manufacturing are continuing to be active in the market. However, what’s really accelerated is the activity from users involved with e-commerce. 

“Sarpy County has seen an explosion in growth because many of these newer e-commerce users are wanting fast, convenient access to major roadways like Highways 50 and 370 and Interstate 80. Our two developments, R&R Commerce Park and R&R Commerce Park South, have been very much in demand because of a mixture of these factors.”

The speed with which both of these developments were occupied underscores both the demand in the community for such space and how long it has persisted. When R&R Commerce Park was completed in 2018, demand was so strong most of the 1.1 million square feet was pre-leased before construction was finished. R&R Commerce Park South, built last year, is seeing a similarly robust response.

Homa said Omaha hasn’t seen the last of such large projects, especially as economic conditions and supply chain issues improve. 

“There are always challenges when it comes to development,” he said. “However, the biggest challenge any developer faces right now is the combined impact of rising interest rates and construction costs. With supply chain issues still causing problems and labor still hard to find, it’s difficult for developers to make progress on a new project. 

“The demand is clearly there for this kind of space in areas like Sarpy County and it isn’t likely to die off any time soon. And that demand is what keeps me optimistic about areas like the Highway 50 and 370 corridors. Supply chain issues will be resolved someday and problems related to inflation will eventually fade. When they do, that demand will be what brings more players to the table in a variety of areas across the Omaha metro.”