Mixed Bag

Commercial Real Estate Resilient Despite Volatility

“Notable developments include Hy-Vee and Menards beginning to take shape on the Hwy 370 corridor and fueling interest from quick service restaurants, service retailers and residential developers,” he said. “Across the river in Council Bluffs, Menards is preparing to open their new flagship store at the former Mall of The Bluffs, and redevelopment plans are in progress for their former location at Lake Manawa Power Center.”

Maurer remains optimistic about what he called “Omaha’s conservative mentality,” which he said “proved vital in withstanding the ups and downs of the COVID-19 pandemic” and “will again be a key factor in weathering any market volatility in 2023.”

Zetzman said NoDo’s The Builder’s District is keeping the Noddle Cos.’ team busy with 115,000 square feet of Class A offices under construction and the Builder’s Square district park/public space poised for construction starting in May, alongside several apartment, condo and hotel projects in the planning stages for the district.

“Delivery is on track next month for a fully leased, 120,000-square-foot medical office building at Village

Pointe,” he noted. “Additionally, there are 20 townhomes in the Elmwood area under construction, with delivery of those residences throughout the second half of 2023.”

As a whole, markets are a “bit more optimistic,” Zetzman said, as the effects of inflation didn’t push the economy off the cliff.

“However, construction cost and interest rate challenges to the real estate environment will be noticed in the next 12 months, with fewer starts for multi-tenant office buildings, new retail buildings and apartment projects,” he added. “Real estate investments and owners with loans coming due in the near-term potentially have some difficult times ahead, with rising rates for refinancing combined with tightening loan underwriting from banks due to liquidity concerns.”

These challenges, according to Zetzman, may combine to create greater equity requirements at refinancing, as well as for new projects – factors that will likely be more severe in larger cities and on the coasts.

“In those markets, we are likely to see more distressed properties and loan defaults,” he said.

On another note, Zetzman underscored how office lease rates for new projects have been lagging behind the rising construction costs and interest rates “for some time.”

“We have now seen those rates escalate about 5% per year the past couple years, with even larger increases at the top of the market for the best buildings,” he said.

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