Omaha s Office Market Continues To Improve

Transcription

1 Research & Forecast Report OMAHA OFFICE Third Quarter 2015 Omaha s Office Market Continues To Improve The Omaha office market continues to improve in the third quarter of 2015 as it experienced another 23,383 square feet of positive absorption. Total absorption for the first three quarters of the year is now 144,211 square feet. The vacancy rate contracted to 12.4 percent at the end of the third quarter, down from 12.6 at the end of the first half of the year, and down 100 basis points from the same time in Positive absorption has now occurred for four straight quarters as well as nine of the last 10 years with 2009 being the exception and aligned with the beginning of the economic downturn. The current vacancy rate is 410 basis points below independent research firm Reis reported 16.5 percent national office vacancy rate for the quarter and down 600 basis points from its high in 2009, at the peak of the recession. As impressive are the statistics above, there is significant new development which has been announced as well as new construction underway. Leading the planned new development is HDR s announced relocation to the CBD and constructing an story building consisting of 280,000 square feet and bringing 900 employees to its new location between 11th and 12th and Dodge & Capitol Streets. Occupancy is slated for January of Another project currently referred to as The Yard redevelopment has been approved by the Omaha Planning Board and will be located on a two-block parcel bound by 14th and 15th and Mike Fahey and Cuming Streets. The Yard will be a mixed-use development containing of Kiewit s international training facility consisting of 63,000 square feet of office space, a 5-story, 110-unit apartment complex, and a 5-story, 125-room hotel. The new administrative offices for Children s Hospital are now under construction. This 30,000 square foot structure will be built at 82nd & Cass Streets which is proximate to Children s Hospital at 8200 West Dodge Road. Occupancy is planned for August of next year. Construction is nearly at completion at two office properties in the West Village Pointe development at 177th & Burke Street including Market Indicators Relative to prior period Q Q4 2015* VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE** CBD Q Suburban Q Note: Construction is the change in Under Construction. * Projected ** Rental rates for current quarter are for CBD. Rent forecast is for metro-wide rents. Quarter Highlight: OFFICE PROPERTIES CURRENTLY UNDER CONSTRUCTION Property Name Address SF Submarket Advent Building Burke Street 42,016 Suburban W Dodge Pacific Life Aksarben Village 106,300 Midtown Village Pointe Plaza 331 Village Poite Plaza 79,000 Suburban W Dodge West Dodge Road West Dodge Road 29,405 Suburban W Dodge Lumberyard District 135th & Millard Avenue 34,810 South Central 1811 Aksarben Drive 1811 Aksarben Drive 71,350 Midtown

2 Berkshire Hathaway Real Estate s new 47,000-square-foot offices and the 42,000-square-foot Advent Building. Berkshire Hathaway Real Estate is relocating from Bank of the West Business Park. Both buildings are planned to be delivered for occupancy in the first quarter of The 106,000-square-foot Pacific Life building in Aksarben Village is due to be occupied in the coming weeks. Vacancy Rates The new 54,000-square-foot headquarters of Tetrad Property Group is well under construction located in Aksarben Village. The Suzanne and Walter Scott Foundation will also be a tenant in the building. Nebraska Realty, formerly Deeb Realty is relocated into in its new 45,000-square-foot headquarters building on the northwest corner of 170th just north of West Dodge Road. Another office building under construction is the Tagge Rutherford Building located at 158th & West Dodge Road. It will be 29,000 square feet and is scheduled for a late 2015 completion. New office space is planned in the Lumberyard District, located on the former Millard Lumber headquarters site in downtown Millard. The amount of office space is yet to be released. It should be noted that the average annual new construction over the last 15 years is approximately 380,000 square feet and 2015 new construction aligns well with this average. Given all of this new construction, minimal new availabilities will occur as most of the construction announced is build-to-suits. 9 6 Q1 14 Q2 14 Combined Rental Rates $30 $25 Q3 14 Suburban Q4 14 CBD Q1 15 Q2 15 Q3 15 For the quarter, the CBD, Central West Dodge, Old Mill, and Suburban West Dodge submarkets were the leaders in positive absorption. By submarket, the Suburban West Dodge submarket shows the lowest vacancy rate in the Omaha Office Market. This popular submarket boasts a low 3.1 percent vacancy rate for the quarter. Other submarkets falling below the overall Omaha vacancy rate are Miracle Hills (3.6%), Central West Dodge (6.0%), Midtown (7.6%), Regency (8.2%), and the CBD (8.7%). The generally well occupied Northwest submarket remains soft with a vacancy rate of 18.6 percent primarily due to the relocation of CSG Systems two years ago and a couple of other firms vacating over 300,000 square feet in North Park. $20 $15 Q1 14 Q2 14 Class A Q3 14 Class B Annual Absorption (in Thousands) Q4 14 Q1 15 Q2 15 Q3 15 By class, Class A continues to out-perform other classes with a low vacancy rate of 4.9 percent. The vacancy rate for Class B buildings is 14.4 percent followed by Class C buildings at 23.1 percent. It should be noted that equilibrium within the market occurs when the vacancy rates are between percent and is defined where market conditions do not favor tenants or owners. Given that so many of the superior buildings are now occupied, the Omaha office market definitely now favors Landlord s properties which are well maintained and conveniently located. $250 $150 $50 $-50 $-150 (137,933) , , , , , ,211 YTD The largest single transaction for the quarter was National Indemnity s relocation from the Mutual of Omaha Campus to the Omaha World-Herald Building consisting of 69,057 square feet. The vacated space at Mutual was backfilled by UNMC and Mutual of 2 Omaha Research & Forecast Report Third Quarter 2015 Office Colliers International

3 Omaha. Other large transactions for the quarter include LinkedIn s 28,021-square-foot expansion at Exec Center II located at 9101 Western where they now occupy in excess of 50,000 square feet. Other major transactions included the Catch Intelligence purchase of a 16,000-square-foot building at West Dodge Office Park, Regus opening of a new 12,456-square-foot executive suite operation at Aksarben Village. While larger transactions drove the scope of absorption within the office market, there were also a significant number of smaller transactions completed during the quarter which accelerates the velocity of the market. There were 24 transactions of 2,000 square feet or greater completed in the quarter which is in-line with the historical 10-year average of 25 transactions within this square foot range per quarter. Regarding move-outs and new vacancy, there was only one major move-out. Vatterott College vacated their 107,718-square-foot building at I Street. The for-profit college sector has been hit hard nationally by newer student loan regulations. The Omaha and Nebraska economies as a whole remain strong. Nebraska continues to have the lowest unemployment rate in the country with an unemployment rate of 2.9 percent at the end of August, a 40 basis point decrease from the same time last year. The latest unemployment rate for the Omaha MSA was 3.0 percent at the end August and down 40 basis points from the end of second quarter of this year. It is also noteworthy that Omaha projects a $2.4 million surplus for its current fiscal year and continues to retain a high credit rating from all rating services. Omaha has one of the nation s most respected business communities. The Greater Omaha Chamber of Commerce was named the 2015 Chamber of the Year by the Association of Chamber of Commerce Executives (ACCE) at ACCE s 2015 annual convention in Montreal. Beyond the office market, there are several high-profile developments or re-developments all over the city. Such projects include Google s $1 billion dollar data center expansion, StratCom s new facility at Offutt Air Force Base, the $350 million Fred and Pamela Buffett Cancer Center at Nebraska Medicine, Nebraska Medicine s new surgical center, the Madonna Rehabilitation Hospital at West Village Pointe, KETV s redeveloped new studios at the former Burlington Train Station, and the newly completed Baxter Arena in Aksarben Village which will host games for UNO s hockey, basketball and volleyball teams this Fall. Large industrial projects are under way in Sarpy County. Looking forward, Omaha will continue to prosper despite ConAgra s announced relocation of their headquarters. Based on their announced job reductions and relocations, it could be anticipated that they will vacate somewhere around 350,000 square feet in Omaha based on a ratio of four employees for every 1,000 square feet. While this may have a short-term impact of an increase in unemployment in the Omaha MSA workforce of 475,000 people, the tick up in unemployment would not exceed.5 percent and Omaha would still possess one of the lowest unemployment rates in the top 50 population centers in the country. No information has been released as to the timing of all of these layoffs and building vacations, although it has been reported ConAgra will occupy 168,000 square feet in Chicago s Merchandise Mart and currently leases 150,000 square feet in nearby Naperville, IL. That being said, When one door closes, another one opens. There is a lot of talk that ConAgra s decision could provide for an exciting opportunity to further develop the Riverfront and the 10th Street corridor. There are several undeveloped parcels within the Riverfront campus that ConAgra owns. These parcels could be catalysts to stimulate further development within the entire CBD as well as along 10th Street and the Riverfront. Furthermore, the Old Market could be extended east across 10th Street with higher densities and create another fabulous urban mixed-use area such as Aksarben Village or Midtown Crossing. Such development could complete the 10th Street corridor from the Henry Doorly Zoo where over $100 million is being invested in its new displays and expansion to the CenturyLink Arena, TD Ameritrade Ballpark and Capitol Street District. The layoffs of the talented executives could also be an opportunity for other successful Omaha based companies to recruit hometown executives who would rather remain in Omaha rather than transfer to an alternative large market. One should not forget when several decades ago a company called Enron moved to Houston and a number of talented executives decided to remain in Omaha and from that event one of the nation s largest privately held companies evolved in Tenaska. Additionally, no one should count out the opportunity for another Fortune 1000 company headquarters to relocate to Omaha because of the quality of labor, tax incentives and quality of life. The opportunities continue to be endless. National Office Picture On a national basis, Reis, an independent research commercial real estate firm, reported office vacancy fell 10 basis points from the end of the second quarter quarter to 16.5 percent, down from a year ago at 16.8 percent and 110 basis points below its high of 17.6 percent at its peak in Continued gains in the labor market are driving increased demand for office space, Ryan Severino, senior economist at Reis stated. Over the last seven quarters, not only has the number of total jobs created per month gradually increased, but the number of higher wage, office using jobs has also increased. It is expected acceleration in the compaction of vacancy rates will occur in the next 12 months. Washington, D.C., continues to have the tightest office market with vacancy rate of 9.0 percent. The vacancy rates in New York City and San Francisco are 3 Omaha Research & Forecast Report Third Quarter 2015 Office Colliers International

4 only 10 basis points higher. Net effective rents increased.7 percent which is a good sign that the national office market is stabilizing. Asking rents in New York City now exceed $70 per square foot on average. The national unemployment rate at the end of the third quarter was 5.1 percent, down 20 basis points from the prior quarter and 100 basis points from the same time in 2014 although the hiring in August and September was the slowest in 7 months. On a monthly basis over the first three quarters of the year the average gains in employment has been approximately 200,000 employees per month. Employment increased in professional and business services, technology, health care, retail trade, financial activities, and warehousing. The largest decreases in employment were in transportation and the energy sectors. Office Investment Picture Sales of office properties are up 28 percent through August of this year over the same period in 2014 according to Real Capital Analytics. Average national cap rates stand at 5.7 percent for CBD assets and 7.0 percent for suburban assets. The largest transaction for the quarter was the sale of the 2,250,000-squarefoot 11 Madison Avenue Building in New York City for $2.285 billion or $1,016 per square foot. The largest transaction not only of the quarter but of the year in Omaha was the sale of the One Pacific Building located at 1125 South 102nd Street encompassing 128,392 square feet for $33.9 million or $264 per square foot to the EverWest Real Estate Partners LLC. Other significant sales were the 74,349-square-foot ConAgra 9 building located at 608 ConAgra Drive, sold for $13.79 million or $185 per square foot, and the 30,032-square-foot Lakeside Medical Plaza located at Lakeside Hills Plaza transacting for $6.5 million or $ per square foot square to IRET Properties. NATIONAL SALES ACTIVITY AUGUST 2015 YTD 2015 Vol ($B) YOY Chg Vol ($B) YOY Chg Office $12.1 9% $ % Apartment $9.9 12% $ % Retail $5.0-17% $58.3 7% Industrial $3.6-18% $ % Hotel $2.0-37% $ % Dev. Site $1.8 19% $14.7 7% All Types $34.4-2% $ % 4 Omaha Research & Forecast Report Third Quarter 2015 Office Colliers International

5 Market Overview Omaha - Office Overview (Does not include owner occupied or medical-use buildings) VACANCY ABSORPTION CONSTRUCTION RENTS Total Vacancy Vacancy Net Absorption Construction Deliveries Under Const Asking Rent Submarket SF SF % Q3 SF 2015 SF Q3 YTD SF Class A Class B CENTRAL BUSINESS DISTRICT DOWNTOWN 4,415, , % 73,346 70, $20.38 $18.81 CBD TOTAL 4,745, , % 73,346 70, $20.38 $18.81 SUBURBAN CENTRAL W DODGE 2,474, , % 38,471 9, $24.45 $19.50 MIDTOWN 1,933, , % 2,376 (30,220) ,650 $28.43 $18.00 MIRACLE HILLS 733,728 27, % (7,075) 35, $20.50 $20.81 NORTHEAST 179,116 21, % 550 (17) NORTHWEST 1,662, , % 1,687 55, $19.80 OLD MILL 1,206, , % 6,213 24, $18.10 REGENCY 958,134 78, % (179) (1,277) $33.25 $20.93 SOUTH CENTRAL 2,307, , % (101,576) (86,515) ,810 $25.00 $18.79 SOUTHEAST 1,027, , % (4,056) (4,056) $20.43 SOUTHWEST 1,445, , % (848) 15, ,000 $23.83 $18.70 SUBURBAN WEST DODGE 2,257,832 69, % 14,474 55, ,421 $29.63 $19.63 SUB TOTALS 16,226,111 2,185, % (49,963) 74, ,881 $26.38 $19.25 TOTALS 20,971,278 2,596, % 23, , ,881 $25.05 $19.24 BY CLASS Inventory Vacancy Net Absorption Construction Deliveries Under Const Available for Sublease SF SF % Q3 SF YTD Q3 YTD SF CBD Suburban CLASS A 6,502, , % 11,670 (62,246) ,565 10,682 85,545 CLASS B 10,826,409 1,481, % 6,186 15, , ,541 CLASS C 3,642, , % 5,527 40, , ,973 TOTALS 20,971,278 2,596, % 23, , ,881 10, ,059 Recent Transactions - LEASE AND SALE ACTIVITY Lessee/Buyer Lessor/Seller Property Size SF/Sale Price LinkedIn Corporation Wiesman Development, LLC 9101 Western Avenue 26,239 SF RGN Omaha IV, LLC/ Regus Executive Suites Noddle AV 4, LLC/Noddle Companies 2111 South 67th Street 12,456 SF EverWest Real Estate Partners, LLC CFO2 Omaha, LLC/One Pacific Place 1125 South 103rd Street $33,900,000 Innovative Financial Systems, LLC Twenty-Five A Building, LLC 4020 South 147th Street $2,000,000 Claireabelle, LLC Country Life Insurance Co North 129th Street $1,480,000 5 Omaha Research & Forecast Report Third Quarter 2015 Office Colliers International

6 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 MARKET CONTACT: Melissa Torrez Director of Market Research Omaha melissa.torrez@colliers.com CONTRIBUTORS: Barry Zoob Senior Vice President Mike Potthoff Vice President CONTACT US: Colliers International Omaha 6464 Center Street, Suite 200 Omaha, Nebraska USA $2.3 billion in annual revenue 1.7 billion square feet under management 16,300 professionals and staff About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,300 professionals operating from 502 offices in 67 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. colliers.com Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.