Commercial Real Estate Always a Value
With the stock market going nuts this week and with the political rhetoric heating up (already - isn't this too soon?), the valuation of commercial real estate is in the news.
National CRE Trends
Tom Soukup, Westgate Bank, sent me an article from the WSJ Surge in Commercial Real-Estate Prices Stirs Bubble Worries. Compelling reading. Has commercial real estate in the Midwest also risen to a level of price unsuitability? Or has this market finally caught up with prices where we should be?
And, this from The Real Deal CBRE and JLL Stock Down as CRE Deals Cool: The disappointing performance suggests the booming growth in commercial property transactions may be “in the rear-view mirror at this point,” Brad Burke, an analyst at Goldman Sachs, told Bloomberg, “This is a natural maturing of the real estate cycle.”
Midwest CRE Trends
But there are factors in Omaha that indicate this isn't a bubble.
Omaha is acting as it should. Commercial Real Estate in many sectors are full. Rents are on the rise. Unemployment is low. Cranes continue to be at work. And consumer confidence in the area is on the increase.
From Lund Office 2Q15 Office Trend:
The Omaha market has consistently been absorbing office space year after year and Q2’s positive absorption was no different. Vacancy is down to 11.9% from 12.2% at the end of the first quarter. All of this positive activity is leading to new development projects.
New projects are popping up all over town. Tetrad Property Group is under construction with their “Home base” project in Aksarben Village. It is a 70,000-square foot, class A office project with approximately 36,000 square feet (sf) of speculative space for lease. Also, Lanoha Development is under construction on a new build-to-suit project for Children’s Hospital. This is another class A project that will be located on 85th and Cass Street. The Advent Building is under construction in the Village Point area (180th and Dodge). Kiewit Construction recently announced plans to have a building built for them on the land that is currently known as “The Yard” on 16th and Cumming. Most significantly, HDR announced plans to relocate their headquarters to 11th and Capital. This will be a nearly 300,000-sf building that will be the first building constructed in nearly a decade having an impact on the Omaha skyline.
What is really happening in Omaha? Great things....
Mega development projects (Offutt and Google) are continuing and keeping all trades busy.
Large building projects are coming on the boards. HDR new headquarters and UNMC continued expansion building to name just two. Costco's newest store has been announced. And - there has been a unique resurgence in downtown that encompasses Creighton, the Old Market, entertainment venues and young professionals making downtown cool.
The inquires from retail and chains across the country to my law office has been on the increase. With Omaha Power Centers at a 0.7% occupancy and consumer confidence on the rise, the fight is on for prime consumer space.
If Omaha stays on track with measured development, keeping an eye on building to demand and keeping the mix of business as Omaha has been noted for - we can continue to ask "What bubble?"
Jerry Slusky is an attorney in Omaha specializing in commercial real estate and the driving force of the CRE Summit scheduling its 26th annual summit on April 8, 2016.