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Cows have pastures. Elephants have legendary valleys of ivory. But where do old office buildings go to die?
In the Omaha area, they're increasingly being revamped and resurrected as apartments, condos or an art deco-style hotel.
The “re-purposing” of such obsolete office space into uses beyond old work cubicles has helped pushed down the vacancy rates in the Omaha area office market to a level not seen since before the recession, said Barry Zoob, senior vice president of Colliers International.
Today the overall office vacancy rate is 14 percent, with the rate for Class A buildings a low 5.8 percent. Compare that with the overall 15.1 percent rate in 2007 prior to the economic downturn, and about 19 percent in 2009.
“It's just dramatic how resilient the market has been,” Zoob said.
Nationally, the office vacancy rate is 17.2 percent.
What makes the local dip even more notable, say area commercial real estate brokers, is that it came despite the emptying of a few big buildings whose tenants moved into new facilities or consolidated.
Contributing as well to the improved vacancy rate is the halt to speculative office building — facilities constructed with the premise: If you build it, they will come.
T.J. Twit of the Lund Co. does not expect speculative projects to resume any time soon. However, he said, he does foresee client demand for larger chunks of new space and says developers will take on those new buildings as long as the primary tenant is identified first.
Other signs of growth:
>> The Omaha area market absorbed more office space in the first quarter of this year than it did in all of last year — nearly 115,000 square feet of net absorption compared with 63,000 square feet.
>> The best performing submarket so far this year was the Central West Dodge corridor, with 56,000 square feet of net absorption, and a vacancy rate of 8.8 percent. The Old Mill and Miracle Hill areas continued to shine with vacancy rates of 5.7 percent and 8 percent, respectively.
>> The downtown vacancy rate also dropped from 12.2 percent last year to 9.6 percent. The suburban market rate declined from 16.2 percent to 15.4 percent.
>> While Class A buildings maintained the lowest vacancy rate, Class B buildings are rebounding with the most absorption so far this year, nearly 65,000 square feet, and a vacancy rate that dropped from 15.2 percent to 14 percent. Companies such as LinkedIn, which moved into larger, 26,663-square-foot quarters near 91st Street and Western Avenue, and Consumers Contractors & Carriers Network moving into 28,000 square feet in North Park helped boost absorption.
Eric Renner of World Group Commercial Real Estate said he is encouraged as well by the increased activity he's seen in smaller transactions, leases up to 10,000 square feet. He attributes the uptick in part to employers replacing workers cut during the recession.
“You're starting to see companies make those moves,” Renner said.
Meanwhile, companies such as Manarin Investment Counsel are building brand new headquarters. Manarin's 20-person staff is expected to move into its new digs near 210th Street and West Dodge Road by the year's end.
Doubling its space to more than 12,000 square feet will allow the company's team of advisers to expand and host popular investment classes on-site, said Vice President Aron Huddleston. Currently, the firm rents part of a multitenant office building at 156th Street and West Dodge Road.
“We continue to grow,” Huddleston said. “In our hunt for space or land, we decided to build a building that was just our business,” allowing a tailored design to fit specific needs.
While such movement signals growth, challenges emerge especially in filling huge blocks of vacant office space, Twit said.
CSG Systems, for instance, is due later this year to move into its new corporate headquarters at 180th Street and West Dodge Road, leaving 200,000 square feet open in North Park. And TD Ameritrade's new 12-story headquarters in Old Mill should be ready to move in late this year or early 2013, vacating space in various office sites across the metro area.
On the other hand, said Twit, big and available office sites also present out-of-town recruitment opportunities. “Hopefully it will get Omaha on the radar for someone not here who needs huge existing space.”
When vacated office buildings aren't easily re-filled, brokers said, landlords face tough decisions on whether to upgrade or shift to a different use.
Enter projects such as the Omaha Federal Building at 15th and Dodge Streets. The 12-story office building sat empty for a few years before it was purchased for use as a 152-room Residence Inn by Marriott.
The 1933 structure is poised to be converted, but its historic and art deco-style design is to be retained.
Todd Heistand of NuStyle Development, who has transformed other office buildings, such as the Livestock Exchange in South Omaha and north downtown's TipTop Building, into apartments, has recently taken on some high-profile conversion projects downtown.
Ongoing is the makeover of the 225,000-square-foot former Northern Natural Gas building at 2223 Dodge St. Crews are turning the remnants of office space into the Highline — trendy, window-filled apartments overlooking Joslyn Art Museum and other downtown landmarks.
Heistand said he waited until the price plummeted to the point he could afford the renovation required for new sky-rise housing. That happened after the office world showed no serious interest.
“There's just not a big market,” Heistand said, for huge and aging downtown office buildings.
NuStyle last summer opened the Bank, an 11-story complex that previously was home to Farm Credit Banks of Omaha. Now the structure at 19th and Douglas is occupied by retail outfits and apartment floors named after gangsters of the day, Babyface, the Dillinger and more.
Details have yet to be announced for the Black Hills Energy building at 1815 Capitol Ave., but Heistand recently purchased that property as well and plans to revamp it as apartments.
Such change is complicated for old office structures. Brick walls must be broken to make way for windows. Elevators must be updated to allow for gurneys in case of emergencies. “There's challenges just to get building materials on the floors,” Heistand said.
In addition to helping to lower vacancy rates, the recent office conversions are expected to bring more residents to the city's core.
“It will be exciting,” Heistand said, “to see five years from now what the area will look like.”
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