Brokers get creative with office space leasing

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Posted: Saturday, May 11, 2013 12:00 am

When no one company stepped up to rent a vacant floor at midtown Morgan's Place, the marketing strategy shifted: The nearly 15,000-square-foot space was carved up and filled up by a collection of smaller businesses.

A similar story surfaced at the Medico building, where a tenant today is preparing to take over a portion of the 50,000-square-foot property at 1515 S. 75th St., once filled by a single insurance firm.

With rental demand for large chunks of office buildings lagging the first part of this year, some commercial brokers have gotten creative on how to lease up available space in a market they describe as still resilient and recovering better than the nation. P.J. Morgan Real Estate is among firms that, for example, parceled up the available floor at Morgan Place to capitalize on what the company saw as a growing interest for executive suite-type working spots.

“Activity has picked up,” said President Ryan Ellis. “But you still have to be imaginative and think outside the box with the market as it is right now.”

Occupied office space is viewed as an indicator of business and job growth. A review of leasing activity during the first few months of this year showed a wane and return to the averages of 2010 through the third quarter of 2012. Only 14 transactions involving 2,000 square feet or more occurred during 2013's first quarter, compared with 21 deals of that size the previous quarter, says an analysis by Colliers International.

For perspective, the Colliers report said, the 10-year average of completed transactions involving at least 2,000 square feet is 32 per quarter.

Despite the slower start to the year, Colliers Senior Vice President Barry Zoob foresees the rest of 2013 to be positive, with several major transactions on the verge of being finished.

T.J. Twit of the Lund Co. shared the confidence, saying Class A suburban office buildings have filled up so well that he expects another speculative building project to be constructed in the near future. He said he just took a prospective client on a tour of suburban spaces of about 15,000 square feet and could find only three places that fit the client's needs.

“You're used to having sometimes more buildings than you can see in one day,” said Twit. “In this case we could have probably knocked that tour out over lunch.”

Eric Renner of World Group noted also that rents for Class A space are rising, a sign of demand.

Optimism overall in the industry stems also from ongoing construction projects including the 125,000-square-foot multi-tenant office building nearing completion at Westroads Office Park, and the 60,000-square-foot structure at Sterling Ridge development at 132nd and Pacific Streets.

Several new and enlarged corporate headquarters also are being built. Among them: Tenaska's 100,000-square-foot home, Gavilon's 131,000-square-foot facility, SAC Federal Credit Union's 90,000-square-foot home and the 110,000-square-foot structure that will house Gordmans' offices.

This month, Millard Refrigeration Services opened its new 90,000-square-foot headquarters at Sterling Ridge.

Zoob likened the year so far to a “half-time break” between a busy period and another yet to come.

“Nothing really material occurred during that first quarter,” Zoob said. “But there is a big buildup for the second half of the game.”

Highlights of 2013 so far:

>> The overall vacancy rate for the Omaha office market worsened slightly, rising from 13.9 percent at the end of 2012 to 14.4 percent.

>> For the first time in at least five quarters, more office space emptied out than filled in Omaha. That “negative absorption” affected all building classes and hit the downtown central business district as well as the suburban markets.

>> Contributing to the higher vacancy rate was the relocation of Medico Insurance to Des Moines, which put about 50,000 square feet into the inventory.

>> Among the best performing areas was the suburban West Dodge corridor, largely due to CBSHome Real Estate adding 12,000 square feet to the 46,000 square feet it leased last quarter at 15950 West Dodge Road. Boosting the central West Dodge area, Lincoln Financial expanded 17,500 square feet at Embassy Plaza.

>> Overall average asking rents increased by 2 percent this quarter compared with the first quarter last year, according to an analysis by Xceligent. Upward pressure on rent is a sign, brokers say, that the market continues to stabilize.

Another vote of confidence in the local office market came as an Omaha-based firm, on behalf of a group of out-of-town investors, closed this month on the purchase of a five-story multiple-tenant office building at 11128 John Galt Blvd.

The $11.25 million purchase of the 137,000-square-foot structure built 40 years ago and now more than 90 percent occupied was made by Metonic Real Estate Services of Omaha on behalf of the investors. Ember Grummons of Investors Realty served as Metonic's broker.

“We're not investing in Omaha because we happen to be in Omaha,” said Brian Morrissey, managing principal at Metonic. “We have strategically chosen Omaha.”

He said Metonic looks at an array of investment opportunities, including apartments and mixed-use retail-residential complexes. The attraction to Omaha, said Morrissey, is rooted in its diverse and agricultural-related job base, state business incentives and strong suburban office market.

Ellis said the P.J. Morgan company has seen increasing activity in all lease sizes but, lately, has had luck with spaces up to 2,500 square feet.

At the former Medico building, he said, it was more realistic to market the property in pieces. He has a proposal from a medical-related company for nearly a full floor, and likely will split the rest up into 5,000- to 10,000-square-foot spaces.

At the downtown Mastercraft Building, a final construction phase has started to finish off the 140,000-square-foot former manufacturing building. The average space is 500 to 1,000 square feet, he said.

Already, three small companies have asked to hold a spot.

Grain & Mortar, a branding and design company already in the Mastercraft, has had such growing pains that it expanded this week.

“What we've seen in that building is: When you build it they will come,” said Ellis.

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