Job growth boosts Omaha economy, spurring new development.
As the 61st largest metro area in the country, Omaha is not known for grabbing national attention. But double-digit job growth over the past decade has landed this Nebraska community firmly in the spotlight and is the impetus behind the metro area's unprecedented amount of commercial real estate development.
Total employment in the Omaha market increased by more than 25% between 1990 and 1999 for a gain of 85,000 jobs, according to the Greater Omaha Chamber of Commerce. That's a sizable increase considering the population in the five-county metro area totals just 693,900. "The percentage of job growth is right up there with high-growth cities on the coasts and in the South," says Vicki Krecek, vice president of communications for the Greater Omaha Chamber of Commerce.
The employment boom is due largely to Omaha's early leadership in telecommunications infrastructure development. Omaha became one of the first metro areas in the country to establish business loops using fiber optics, ISDN lines and cable modems. Although such high-tech amenities are becoming more prevalent in cities across the country, the early presence of such infrastructure did help to attract new businesses to the area, notes Krecek.
Currently, Greater Omaha is home to 18,600 businesses, including five Fortune 500 companies: ConAgra, Mutual of Omaha Cos., Union Pacific, Berkshire Hathaway and Peter Kiewit and Sons, according to the U.S. Department of Commerce. The unemployment rate remained steady at 2.6%, and employment increased by .8% in second-quarter 2000 compared with the same period in 1999.
Omaha's diverse business base also has helped create a stable economy. The largest employment sector in Omaha is the service sector, which accounts for 32.8% of the area's 418,611 workers. According to the Greater Omaha Chamber of Commerce, the services and trade sectors combined employ 57% of the work force, which reflects the city's status as a regional service and trade center.
"This growth is occurring all over the city. It's absolutely phenomenal," says Krecek. Downtown represents the most active area, and the most significant project is a new $281 million convention center and arena. The project is located on 104 acres of a 422-acre redevelopment site near the Union Pacific rail yards. The facility will feature 194,000 sq. ft. of total exhibition space, an arena that can accommodate 14,600 to 17,000 spectators, a 30,000 sq. ft. ballroom, 40,000 sq. ft. of meeting room space and 5,300 parking stalls.
The convention center is just one among many development and redevelopment projects under way in downtown. "Right now there is a 33-block area surrounding the convention center that is looking at $1 billion in construction over the next 10 years," says Krecek. (See accompanying story, on page 92).
Office development brisk "If you're not familiar with Omaha, and you look hard at the growth and activity in Omaha, you would be totally amazed," says Jay Noddle, president of local Grubb & Ellis/Pacific Realty. "The metro area is growing in all sectors at an enormous rate."
Union Pacific has selected a downtown site for a new 1 million sq. ft. headquarters, and the company is in the process of choosing a design firm. Union Pacific plans to consolidate its existing office space in the larger headquarters. "The city also is in the hunt for a new world headquarters for Gallup," says Noddle. Although the project is still in the early stages, Gallup Inc. is looking at riverfront sites between the airport and downtown that would accommodate a 300,000 sq. ft. building. Gallup would relocate from its present Lincoln, Neb., facility and bring 700 new jobs to the market, says Noddle.
Construction in the CBD will be brisk into 2001 and beyond. A 280,000 sq. ft. technology center begun by Atlanta-based First Data Corp. in 1998 has been completed. First Data also is constructing a $30 million, 200,000 sq. ft. office building with completion tentatively set for October 2001. A 40-story office tower for First National Bank is under construction. When it is completed, the new facility will be the largest structure in Omaha.
Also, the Omaha World-Herald is building a $100 million newspaper production facility downtown. In addition, a redevelopment of the former Northwestern Bell Headquarters building is planned.
But despite new construction, CBD vacancies are expected to remain steady. The lion's share of First National Center space coming on line in 2002 is already spoken for by various bank divisions. Bank officials had announced that only 100,000 sq. ft. or less would be available for multi-tenant occupancy. Downtown vacancies averaged 4.59% as of second-quarter 2000, while suburban vacancies in the West Omaha market registered 10.25%, according to Grubb & Ellis.
Demand for office/flex The Omaha industrial market is largely user-driven, and it is not as robust as the office market, notes Noddle. At year-end 1999, vacancies were at 8.5%. Approximately 850,000 sq. ft. of space was absorbed in 1999 with 688,000 sq. ft. under construction, according to Grubb & Ellis.
One market segment that is experiencing growing demand is office/flex space. Developers have been building smaller flex buildings to accommodate demand for office users seeking more affordable space, says Noddle. Interest in office/flex buildings is expected to intensify as the number of technology-oriented companies continues to grow and expand in the Omaha marketplace.
The hottest area for industrial development is in the Sarpy County/Interstate 80 corridor, where activity has been fueled by abundant site availability and a strong labor pool. Also, the MSA's population growth has been steady, and the greatest increase is projected to occur in Sarpy County. The county's population base of 125,556 is projected to grow by more than 18% over the next decade, according to Grubb & Ellis.
"Sarpy County is where the majority of industrial sites are, and both the county and the developers have been very aggressive," says Noddle. The available land supply has created an ideal spot for new business park development. At year-end 1999, the county had more than 3,000 acres zoned for industrial use and an additional 600 acres proposed for industrial development. "We expect to see a lot of sustained growth in Sarpy," he says.
Activity also is heating up in Douglas County's Northwest Corridor. This area will continue to generate activity as new development begins to proliferate. Proximity to I-680 and Eppley Airfield, combined with Omaha's expansion of utility services to the area, will make this sector very attractive for large projects, according to Grubb & Ellis.
Retail expansion to moderate "Omaha just continues to be a very stable, growing market," says Rob Wyant, senior vice president of asset management for Chicago-based General Growth Properties Inc. The Omaha market benefits from a strong corporate presence with firms such as ConAgra and First Data Resources, as well as a healthy student base from the University of Nebraska-Omaha and Creighton University.
However, retail growth in 2000 was expected to move at a slightly slower pace than the 10% cumulative growth rate of 1998 and 1999. Big-box activity, which slowed in 1999 compared with the prior year, will continue to slow slightly. New retail space scheduled for completion in 2000 is projected to reach about 500,000 sq. ft., according to Grubb & Ellis. The retail sector has maintained a steady 6% vacancy rate in recent years.
New retail projects include a $5.8 million Super Wal-Mart planned for 182nd and Wright. B&R Stores of Lincoln, Neb., has opened its first Omaha operation with a Super Saver warehouse store in Millard.
Also, a $200 million mixed-use development that will feature a 24-screen movie theater, mid-rise hotels, restaurants and music venues, office buildings and retail stores of all sizes is in the planning stages. The project is planned for the Harrison Street interchange at I-80 in Sarpy County, and the master plan calls for an estimated 1 million sq. ft. of office space and 1 million sq. ft. of retail space.
General Growth Properties Inc. is the leading owner and developer of retail real estate in Omaha. Its properties include Oak View Mall and Westroads Mall in Omaha, and Mall of the Bluffs in Council Bluffs, Iowa.
"We continue to see the area surrounding Westroads evolving as a business hub," says Wyant. The 1.2 million sq. ft. Westroads Mall is the largest shopping center in Nebraska, and it is anchored by JCPenney, The Jones Store, Von Maur and Younkers stores. General Growth has seized the opportunity to add casual dining and other retailers that cater to the white-collar work force. A Macaroni Grill restaurant is one recent addition to Westroads.
General Growth also has initiated an aggressive re-merchandising campaign at the 870,323 sq. ft. Oak View Mall, where Dillard's, Younkers, JCPenney and Sears are anchors.
"Far West Omaha is the fastest growing part of the trade area," says Wyant. "We see that as an opportunity to adjust our merchandising and price points accordingly."
Multifamily leveling off a bit The multifamily industry has experienced a steady flow of new construction over the last several years. In 1999, permits were pulled for 560 new apartment units in the city of Omaha. So far in 2000, permits have been pulled for 660 units."There has been fairly steady new construction in the amount of units built, but I think that is leveling off somewhat," says Nate Schwalb, owner of Omaha-based Schwalb Realty.
The apartment supply is keeping pace with Omaha's growing demand. "We are running well into 90% in occupancies - about 97% to 98% occupied - at our properties," says Schwalb. "We're hearing that a lot of the well-kept existing units are still renting well, and that the vacancy rates are low throughout the market."
Northwest Omaha is the fastest-growing market. Four major apartment complexes, each with 300-plus units, have been developed in northwest Omaha in the past six years, notes Schwalb.
As part of a joint venture, Schwalb Realty is developing a 480-unit property in northwest Omaha. The first units in Hillsboro Pointe Apartments opened in early January and about 120 units are completed.
"We're filling them up reasonably well within a relatively short time after completion," says Schwalb. However, concessions are now appearing in new properties to attract residents.
Typical concessions include offers of a $500 rent credit on a two-bedroom unit or six months of free garage parking, which is a $360 value, says Schwalb. Concessions like these are likely to trigger a slowdown in construction starts as the market absorbs the new units, he adds.
New hotels meet pent-up demand Hotel construction has returned to the Omaha market after a lengthy dry spell. "Over the last few years, we have seen pretty substantial upscale hotel development in the downtown area," says Mike Wiese, a senior vice president for special services at Grubb & Ellis/Pacific Realty.
Downtown development activity includes the renovation of the former Red Lion, which has been reflagged as a Doubletree property. Three new properties under construction include a 240-room Embassy Suites, a 180-room Courtyard By Marriott and a 180-room Hilton Garden Inn. "Relatively speaking, that's a lot of development for a short period of time," says Wiese.
One notable feature of the downtown Omaha hotel market is that the regional airport is just three miles away. "So, we have both a downtown and airport hotel market that co-exist in the same geographic area, which is a little unique," says Wiese.
Along Abbott Drive, which is the main highway between downtown and the airport, a number of hotel projects have been constructed in the last few years. A 100-room Wingate Inn, a 93-room Sleep Inn and a 54-room Country Inn & Suites have all opened in recent months. In addition, a 66-unit Super 8 and a 68-unit Hampton Inn are under construction.
The addition of new hotels has produced a dip in occupancies. Average occupancies year-to-date through June are down 6.4%, to 61.3%. But, during the same period, room rates rose 3.7%, to $64.70, according to Hendersonville, Tenn.-based Smith Travel Research.
The surge in construction activity is due in part to pent-up demand. "We went through a period of several years where there were very few additions to the downtown hotel market," says Wiese. Increased airport traffic also has sparked new hotel development. Prior to the building boom, the only hotel serving the airport market was a 149-room Ramada Inn that was built in the 1970s. "The next big thing that will happen in terms of hotels is trying to land a major convention hotel to be developed as part of the convention center complex," he says.
Ultimately, the strong economy continues to generate development opportunities in all real estate sectors. The business base continues to expand, and the addition of a convention center will improve the area's ability to attract conventions. Finally, expansion of the Eppley Airport will improve the transportation in and out of the metro area. "Omaha is really growing up as a city," says Noddle.
State-of-the-art convention center and arena is expected to spark economic growth.
A new $280 million convention center and arena is expected to reshape downtown Omaha.
"It's really a very exciting thing, because it's going to bring a lot of people here," says Vicki Krecek, vice president of communications for the Greater Omaha Chamber of Commerce.
The new convention center and arena also is likely to spark additional hotel, restaurant, retail and entertainment development, adds Krecek.
The project is located on 104 acres of a 422-acre redevelopment site near the Union Pacific rail yards in downtown Omaha. The new state-of-the art convention center and arena will nearly double the current amount of meeting space Omaha has to offer.
"What it does for the first time in the city's history is allow us to compete for large conventions," agrees Tim McNeil, manager of marketing and public relations at the Greater Omaha Convention & Visitors Bureau. Current meeting facilities have a capacity to hold about 3,000 people, so Omaha is limited to pursuing small and mid-size conventions. The new convention center will be able to accommodate up to 7,500 delegates.
Four separate areas allow the facility to hold up to four events at the same time, or all four areas can be incorporated to meet the needs of one large event. The project features 194,000 sq. ft. of total exhibition space; a 30,000 sq. ft. ballroom; 40,000 sq. ft. of meeting room space; an arena that can accommodate 14,600 to 17,000 spectators; and 5,300 parking stalls.
The design was created by a team of national design firms under the leadership of Omaha's DLR Group. The team also included NBBJ Sports & Entertainment of Los Angeles and LMN Architects of Seattle. Site grading began this summer, and a completion date is scheduled for fall 2003.
The larger capacity will substantially boost existing convention traffic. In 1999, the Greater Omaha Convention & Visitors Bureau processed over 520 conventions, which brought 250,000 delegates. An increase in convention traffic will be a boon for the Omaha economy. According to the Convention & Visitors Bureau, delegates spend an average of $230 per day.
Project to spin off development "An overwhelming majority of people in Omaha, as well as western Iowa, are very excited about the new convention center and arena," says Trenton B. Magid, president of Omaha-based World Group LLC, a commercial real estate services firm.
"There are expectations that the new convention center and arena will be a stimulant to development along the riverfront in downtown," agrees McNeil. Investment in riverfront redevelopment over the next decade is already estimated at more than $4 billion, he notes. One of the first projects likely to be built is a major convention hotel. Although a developer has not yet been identified, a new, large hotel will be needed to accommodate the greater convention traffic.
Downtown Omaha has experienced a significant amount of development and redevelopment in recent years. Several new office projects are in the works, such as a 200,000 sq. ft. office building for First Data Corp.; a 40-story office tower for First National Bank; and a new $100 million newspaper production facility for the Omaha World-Herald.
Downtown's Old Market District is another area that has seen substantial revitalization in recent years with new stores, restaurants and residential units. In addition, the city has joined forces with businesses and private citizens to improve Abbott Drive, the main corridor linking downtown with the airport.
New image anticipated for city "The new convention center and arena has the potential to redefine our city," says McNeil. Historically, Omaha has been characterized not so much by a negative image, but rather as a city without an image, he says. The new convention center provides a catalyst for defining a clear and concise image, he adds.
Although the city is still in the process of crafting that new image, Omaha is hoping to create an identity that makes a big impression with national travelers. The Convention & Visitors Bureau has commissioned significant research on the metro area's appeal to regional and national travelers. One result of the research is a more targeted marketing effort.
"The downtown is a very viable part of the city in other parts of the country, and Omaha has never been known for its CBD," says Nancy K. Johnson, a principal with The Lund Co., an Omaha-based real estate services company. "My opinion is that the new convention center and arena is going to revitalize our downtown area and get it to where it needs to be."