Office market struggles

The corporate center of Omaha has some gaping holes in its office market.

But commercial real estate brokers say the city doesn't need to be concerned by new figures showing downtown's office buildings are anywhere from 25 percent to 28 percent vacant overall.

“It looks worse than it is,” said David Barton, vice president of Omaha's CB Richard Ellis/MEGA firm.

Overall, Omaha's office market despite a vacancy rate that, at 19.4 percent, remains higher than is considered healthy is showing signs of stabilizing. For two straight quarters, the market overall has seen a net gain in the amount of occupied office space, according to Grubb & Ellis Pacific Realty.

The office markets around Interstate 680 and West Dodge Road are doing well: Miracle Hills has a vacancy rate of just 8.8 percent, Regency 11.6 percent and Old Mill 12.4 percent. Northeast Omaha also is among the best with just a 12.3 percent vacancy.

The southeastern metro, South Omaha and Bellevue, is among the worst with 25.4 percent vacancy.

The new figures come from the local commercial real estate firms' first quarter office market reports.

Just last quarter, metro-area firms figured downtown offices were anywhere from 15 percent to 21 percent empty.

Much of the difference now is because local brokerage firms have hired an outside company, Independence, Mo.-based Xceligent, to conduct a joint survey and provide uniform statistics. In the past, Omaha's major firms included different buildings in separate surveys, producing a variety of results.

In this quarter's survey, some strong midtown offices that had been lumped with downtown were spun off for their own market measurements.

The survey also added the Northwestern Bell building a vacant 343,000-square-foot building at 19th and Dodge Streets that is awaiting renovation to downtown's count.

Two reports continued to reflect some discrepancy. CB Richard Ellis said downtown's vacancy rate is 28.5 percent. In its own analysis, Grubb & Ellis factored out the Northwestern Bell building and put the rate at 25.1 percent.

Despite the high figures, the attraction of downtown has not changed, said Barry Zoob, vice president of Grubb & Ellis.

“Corporate Omaha is still going to be centered in Omaha,” he said. “And that's for the long haul.”

But the downtown figures reflect some of the Omaha market's current struggles.

Downtown's lower-rated office buildings, which include the empty Northern Natural Gas building and the empty former federal building at 15th and Dodge, are 73 percent vacant.

High vacancy rates in that class of building is an issue across the city. Class C offices are 38 percent vacant citywide, compared with 14 percent for the two higher office classifications.

In downtown, a few large, empty properties are skewing the numbers, Barton said. Downtown would have a more moderate vacancy rate of around 15 percent if you factored out all Class C properties.

However, Zoob said, downtown also has seen major employers, including Wells Fargo and Pacific Life, cut employees, which resulted in office space going vacant or being put on the market. Last month, Black Hills Energy announced it will leave downtown for a new building in Papillion.

Downtown's employers will recover, Zoob said. But all of Omaha's office market has to adjust its expectations after the recession.

“There's a new normal today,” he said. “We overbuilt.”

Speculative office construction offices built in anticipation of finding tenants later is at a standstill. Some projects are continuing, but it involves companies establishing new headquarters, such as TD Ameritrade and Blue Cross Blue Shield.

Barton said the volume of leasing deals is picking up, although he still termed the activity “low velocity.”

“We're hopeful that we're coming out of that slump right now,” he said.

The key to continued improvement in Omaha's office market will be job growth.

“This market could turn around very quickly,” Barton said.

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