Mixed Bag COMMERCIAL REAL ESTATE RESILIENT DESPITE VOLATILITY

BY MICHELLE LEACH

RENDERING OF NEBRASKA MEDICINE’S NEW FACILITY ON ITS VILLAGE POINTE HEALTH CENTER CAMPUS. (COURTESY OF NODDLE COS.)

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.”

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.

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