Mixed Bag Commercial Real Estate Resilient Despite Volatility

Given the complexity of the industry, it is no surprise that the metro commercial real estate environment is a mixed bag. Rivaling competitor markets with increased development in areas like downtown is contrasted with broader economic uncertainty, rising interest rates, and persistent inventory shortages.

Ed Fleming, executive vice president and principal at Colliers, spoke to many years of good occupancy levels across “all of the major food groups.”

“We continue to see that in early 2023,” Fleming said. “And, despite the work-from-home trend that accelerated during COVID, the Omaha office market has remained solid. For Colliers we have remained busy throughout 2022 and into 2023, with 2022 being one of our best years. That tells me that activity has been strong across the board.”

When asked specifically about sales and leasing activity, Fleming acknowledged the slowdown in investment sales that often comes with the rise in borrowing costs.

“For the first half of 2022, the market was able to absorb the increases without impacting cap rates,” he stated. “We started to see cap rates impacted as we moved into the second half of 2022.”

So far in 2023, there has been a disconnect between buyer and seller expectations.

“That expectations gap is not unique to Omaha, as it is occurring across the entire U.S.,” he said. “We do expect that gap to narrow as we move towards the second half of 2023, at which time sales activity should increase.”

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Rendering of Nebraska Medicine’s new facility on its Village Pointe Health Center campus. (Courtesy of Noddle Cos.)
Rendering of Nebraska Medicine’s new facility on its
Village Pointe Health Center campus. (Courtesy of Noddle Cos.)

Leasing occupancies remain strong. Office buildings are absorbing additional space due to movement with medical staffing firms. 

When NAI NP Dodge Vice President Jorge Sotolongo was asked to take the pulse on the commercial real estate environment at present, he described a “balancing act between persistence and caution.”

“Despite delays and increased scrutiny by lenders and buyers alike, we are still seeing properties trade at strong prices,” Sotolongo said. “The climate has certainly cooled, but deals are still out there.”

Specifically to sales and leasing activity, commercial sales were down across “nearly all sectors,” attributed to not only increasing rates but also growing scarcity in the market, Sotolongo said.

“In contrast, leasing has remained consistent,” he noted.

Spencer Secor, senior associate and office specialist with The Lund Co., said that he has seen sales trend down and leasing swing up when compared to this time a year ago.

“A lot of it has to do with the sudden interest rate increase and figuring out how deals pencil,” Secor said. “That being said, I think investors and users alike are getting used to the new normal. As time goes on, I believe deals will continue to move forward as there is still demand for space.”

Leasing activity of all sorts is reportedly keeping Secor’s team busy – be it relocations, renewals, downsizing and so on.

Rendering of Brickline at The Mercantile. (Courtesy of Colliers)
Rendering of Brickline at The Mercantile. (Courtesy of Colliers)

Many Moving Parts

“Limited supply” is the one phrase that summed up all asset classes in the Omaha market for The Lerner Co. Associate Broker Adam Maurer. 

“The retail market has experienced a downward trend in deliveries for five consecutive years, resulting in vacancy rates reaching their lowest level since 2015,” Maurer said. “With Omaha’s retail vacancy rate sitting near an all-time low, high retailer demand has increased average asking rates by across the metro by 5.8%.”

However, Maurer continued, this has not slowed retail leasing in areas such as The Capitol District, which he said will feature three new tenants (including two regional bar concepts, The Roxxy and The Stuffed Olive, and local restaurant Frank’s Pizzeria).

“Two new-to-market concepts, Walk On’s Sports Bistreaux and Yeti, have announced they will be coming to Nebraska Crossing Outlet Mall,” he said.

Maurer stated that the firm continues to see activity in investments, but rising interest rates are forcing investors to be more stringent with underwriting and to evaluate where and how they invest.

“Sellers are coming to grips with the fact that current market conditions are not what they were six to eight months ago, and expectations are following suit,” he said.

“Conservatively optimistic” is how Ted Zetzman, executive vice president and director of development at Noddle Cos., describes the current local CRE climate. 

“The office leasing market segment continues to be active for high-quality buildings particularly those in walkable amenity-rich locations,” Zetzman said. “Successful, stable tenants that can afford it continue to look to upgrade their office environments to better quality buildings, as there are fewer new buildings under construction due to lingering questions about ‘back-to-the-office’ trends, construction cost escalations and elevated interest rates.”

Class B buildings, Zetzman continued, have some large vacancy blocks. 

“But several of those are getting leased due to lack of inventory of large blocks of space otherwise,” he explained. “Retail is very active, particularly in second-generation space with retailers encouraged by retail sales growth but seeking the most cost-effective solutions.”

And, he said, industrial leasing volume is low – again, because of the lack of inventory with small to mid-sized vacancies leased as fast as they become available.

Leasing activity is similar to the first quarter of 2022, albeit with slightly less net absorption due to “residual post-COVID pent-up demand that was satisfied in 2022,” according to Zetzman.

“Current retail sales growth is slightly off the pace of last year’s sales growth,” he added.

Rendering of the 1501 Mike Fahey St. complex in the Builder’s District. (Courtesy of Noddle Cos.)
Rendering of the 1501 Mike Fahey St. complex in
the Builder’s District. (Courtesy of Noddle Cos.)

Over the last 18 months, Zetzman’s team has worked hard to generally lease up its office portfolio.

“A new downtown office construction project is underway and a new medical office building delivers next month,” he said.

Zeroing in on Projects

Colliers’ Fleming spoke at greater length to bright spots in downtown Omaha, as developers capitalize on civic improvements in the area.

“The dynamic redevelopment of Gene Leahy Mall, and the planned Omaha streetcar, has reconnected and revitalized the link between downtown and the riverfront,” he said. “The Mercantile project on 10th and Harney will deliver T3, a timber-constructed office building. It is a vintage concept built new. The idea links the nostalgia of the past with modern innovation and the efficiencies of today.”

Within the Mercantile development, but separate, Fleming said the Brickline offers multifamily living and retail that extends the Old Market to Heartland of America Park Lake.

In all, Fleming’s outlook for the next 12 months and beyond remains sunny.

“Despite the rising interest rate environment, Omaha continues to have a low unemployment rate and continues to add new employees,” he explained. “That really creates a strong tailwind for all commercial real estate types. 

“During a time of higher interest rates and construction costs, Omaha has a healthy real estate community with responsible real estate developers/landlords and business owners.”

NAI NP Dodge’s Sotolongo expects “more of the same” for the next 12-plus months.

“ … increasing interest rates, scarcity in the market, less sales and more leasing,” he said. 

Sotolongo, an Omaha Planning Board member, said it was encouraging to see the number of impactful projects occurring in the metro.

“Downtown redevelopment, suburban growth, public infrastructure and transportation — I see these projects every month,” he said. “Despite economic challenges, Omaha continues to grow, densify and push forward.”

Capitol District Plaza near 10th and Capitol streets. (Courtesy of The Lerner Co.)
Capitol District Plaza near 10th and Capitol streets. (Courtesy of The Lerner Co.)

Secor said The Lund Co. has been working on the La Vista City Centre project off 84th Street between Harrison and Giles roads. 

“We are very excited about this City Ventures development,” he said. “The main attraction at the development will be The Astro, an outdoor/indoor amphitheater which is set to open this summer.”

Additionally, he alluded to many retail tenants “on the same timeline.”

“We know this is going to be a fantastic addition to La Vista and the surrounding metro,” he added.

Secor, too, expects the next 12 months to be similar to the last 12 months. 

“As everyone continues to get used to the new normal, we can expect deal volume to pick up,” he said.

Optimism Ahead

The Lerner Co.’s Maurer spoke to “much-needed” inventory in various stages of construction across the metro.

“Notable developments include Hy-Vee and Menards beginning to take shape on the Hwy 370 corridor and fueling interest from quick service restaurants, service retailers and residential developers,” he said. “Across the river in Council Bluffs, Menards is preparing to open their new flagship store at the former Mall of The Bluffs, and redevelopment plans are in progress for their former location at Lake Manawa Power Center.”

Rendering of La Vista City Centre. (Courtesy of The Lund Co.)
Rendering of La Vista City Centre. (Courtesy of The Lund Co.)
La Vista City Centre (image provided by Lund)
La Vista City Centre (image provided by Lund)

Maurer remains optimistic about what he called “Omaha’s conservative mentality,” which he said “proved vital in withstanding the ups and downs of the COVID-19 pandemic” and “will again be a key factor in weathering any market volatility in 2023.”

Zetzman said NoDo’s The Builder’s District is keeping the Noddle Cos.’ team busy with 115,000 square feet of Class A offices under construction and the Builder’s Square district park/public space poised for construction starting in May, alongside several apartment, condo and hotel projects in the planning stages for the district.

“Delivery is on track next month for a fully leased, 120,000-square-foot medical office building at Village Pointe,” he noted. “Additionally, there are 20 townhomes in the Elmwood area under construction, with delivery of those residences throughout the second half of 2023.”

As a whole, markets are a “bit more optimistic,” Zetzman said, as the effects of inflation didn’t push the economy off the cliff.

“However, construction cost and interest rate challenges to the real estate environment will be noticed in the next 12 months, with fewer starts for multi-tenant office buildings, new retail buildings and apartment projects,” he added. “Real estate investments and owners with loans coming due in the near-term potentially have some difficult times ahead, with rising rates for refinancing combined with tightening loan underwriting from banks due to liquidity concerns.”

These challenges, according to Zetzman, may combine to create greater equity requirements at refinancing, as well as for new projects – factors that will likely be more severe in larger cities and on the coasts. 

Marriott Hotel in the Capitol District. (Courtesy of The Lerner Co.)
Marriott Hotel in the Capitol District. (Courtesy of The Lerner Co.)

“In those markets, we are likely to see more distressed properties and loan defaults,” he said.

On another note, Zetzman underscored how office lease rates for new projects have been lagging behind the rising construction costs and interest rates “for some time.”

“We have now seen those rates escalate about 5% per year the past couple years, with even larger increases at the top of the market for the best buildings,” he said.


Rendering of the T3 (timber, technology, talent) construction building at the Mercantile development. (Courtesy of Colliers)
Rendering of the T3 (timber, technology, talent) construction building at the Mercantile development. (Courtesy of Colliers)


Greenleaf Commercial Real Estate • greenleafcommercial.com
West Gate Bank • westgate.bank
All Makes • allmakes.com
Darland Construction • darland.com
McGill Restoration • mcgillrestoration.com
DLR Group • dlrgroup.com
The Lerner Co. • lernerco.com
The Collective • TheCollectiveOmaha.com
Lee & Associates • lee-associates.com