What does the Lincoln, Nebraska commercial real estate market have to offer? Quite simply, it has land, room to grow, affordable prices, and a centralized location. Pair these attractive and unique characteristics with an educated workforce in a culturally diverse community and the answer becomes clear. Lincoln’s commercial real estate market has a lot of potential.
Despite its small size of about 300,000 people, Lincoln experiences the same challenges and triumphs as larger metropolitan areas.
One of Lincoln’s biggest market challenges is the low supply of industrial space in a high-demand environment. The industrial vacancy rate at the end of 2021 was 1.6%. Any new product that comes to market is rented quickly and the selling price per square foot is on the rise with a 31% increase in just three years.
Unfortunately, in the Lincoln market, the value of new industrial building permits has been on a downward trend over the past five years. The increase in the cost of construction makes this trend even more significant; many developers are unwilling to invest in speculative products without the certainty that tenants will pay the rent necessary to provide an adequate rate of return.
A local developer, Las Brisas Land Development Co., has taken up this challenge by building approximately 500,000 square feet of specific industrial products in recent years. This bet paid off; all of this product has been rented or sold with little to no time in the market.
Fortunately, Lincoln had forward-thinking city planners who created plans and the infrastructure necessary for growth and progress. Construction of a bypass highway known as the “Southern Ring Road,” which will provide convenient access to interstate and freeway networks, is nearing completion.
Anticipation of this bypass has already begun to create new commercial areas from former farmland, providing growth potential not readily available elsewhere. Hopefully this will provide more opportunities for the industrial/flex space product that Lincoln needs.
Multi-family and residential condos continue to be a safe bet in the Lincoln market. The average price per unit for multifamily homes is up nearly 60% from three years ago. Construction continues to follow this trend; the value of new building permits increased by 45%, indicating substantial growth across the city.
These figures are impressive but do not even take into account the transformation underway in the Central Business District (CBD). Lincoln’s CBD is located between the State Capitol and the main campus of the University of Nebraska, and it is a Big 10 university with 50,000 students. Historically, large multi-tenant office buildings were occupied by private industry, government offices and banks. Due to multiple factors such as consolidation, downsizing, and commuter theft, Lincoln CBD is undergoing a transformation from office use to residential use.
Over the past year, nearly 13% of CBD’s total office space has been converted to student housing and residential condos. Trinitas Ventures has begun construction on a $60 million project to build a two-level student apartment building on the site of the former home of the Lincoln Journal Star newspaper. It will have 321 units and is expected to open in the summer of 2023.
The retail sector of Lincoln’s commercial real estate market is holding steady with a vacancy rate of 6.6%. A good portion of new retail businesses are small, local businesses. This has been fueled by a shift in consumer preferences to support local businesses and greater social acceptance of the emerging CBD market.
Lincoln’s hospitality industry faces staffing challenges like other metropolitan markets. Despite this challenge, Lincoln has a large hotel development underway. Warhorse Gaming LLC is building a $220 million casino/hotel following the state’s signing of the first-ever commercial casino gaming bill in May 2021. This is the first such development in this community . When completed, it is expected to create over 900 jobs.
Office is a wildcard
The office is still the wildcard in Lincoln’s market, as the long-term effects of ghost space and the pandemic are still uncertain. Many large employers are still working completely remote or semi-remote. It’s unclear whether these companies will decide to return to their current space, downsize, or expand.
One industry that seems to be constantly shrinking office space is banking. Regional and national banks tend to close branches and reduce office space by up to 70%.
Even with the current uncertainty and developers’ focus on multi-family and residential condos, new office construction persists. Bryan Health, a major regional healthcare provider, has begun construction on a 140,000 square foot April Sampson Cancer Center, which will be ready to serve patients in 2023. NEBCO Inc., a local developer, is in nearing completion on its $25 million multi-tenant office building in downtown Lincoln.
Lincoln’s commercial real estate market remains stable and stable; the biggest problem is usually more demand than product. Macroeconomic conditions including inflation, rising interest rates and low unemployment are challenges that directly impact the market and the trajectory of its trends.
Unlike many metropolitan areas in the United States, Lincoln is unique because there is space for the city to grow, making it a prime location for development. The state invests in infrastructure, providing quality roads needed for transportation and logistics. The quality of life is high with a relatively low cost of living.
These qualities have helped make it the headquarters of several successful multinationals and start-ups. The stability of Lincoln’s commercial real estate market has persisted through the worst economic times and is expected to continue to do so.
Mike Ball is Vice President of Sales and Leasing for NAI FMA Realty. This article originally appeared in the April 2022 issue of Heartland Real Estate Business magazine.