Omaha s Office Vacancy Rate Is The Lowest In 15 Years

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1 Research & Forecast Report OMAHA OFFICE Second Quarter 2015 Omaha s Office Vacancy Rate Is The Lowest In 15 Years Availability in the Omaha Office Market continues to decrease as the vacancy rate contracted to 11.9 percent at the end of the second quarter of 2015, a reduction of 40 basis points from the prior quarter. This is the first time in 15 years the overall vacancy rate in the Omaha Office Market was below 12 percent. Positive absorption accelerated over the prior quarter and additional new construction was announced, supporting the conclusion; 2015 will be a strong year for the Omaha office market. The current vacancy rate is 470 basis points below independent research firm Reis reported 16.6 percent national office vacancy rate for the quarter and down 570 basis points from its high in 2009, at the peak of the recession. For the quarter, 119,721 square feet of office space was absorbed. In the first half of the year, absorption was 143,764 square feet. Also announced are the new administrative offices for Children s Hospital. This 30,000-square-foot structure will be constructed at 82nd & Cass Streets and proximate to Children s Hospital at 8200 West Dodge Road. Occupancy is planned for August of next year. Furthermore, the Omaha Track Headquarters, a railroad recycling company, announced the planned construction of their new headquarters consisting of 16,000 square feet and located at 129th & I Streets. The design will resemble a railroad depot. (Continued on page 2.) Market Indicators Relative to prior period Q Q3 2015* VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE** CBD Q Suburban Q Note: Construction is the change in Under Construction. * Projected ** Rental rates for current quarter are for CBD. Rent forecast is for metro-wide rents. Quarter Highlight: Historically Low Vacancy Rate As impressive are the statistics above, there were a number of major announcements of new construction. Leading these announcements is HDR s planned relocation to the CBD and constructing an story building consisting of 280,000 square feet and bringing 900 employees to its new location between 11th and 12th and Dodge & Capitol Streets with occupancy slated for January of Another project currently referred to as The Yard redevelopment will be located on a two-block parcel bound by 14th and 15th and Mike Fahey and Cuming Streets. The Yard will be a mixed-use development encompassing Kiewit s international training facility consisting of 63,000 square feet of office space, a 5-story, 110-unit apartment complex, and a 5-story, 125-room hotel. 25% 20% 15% 10% 5% 0%

2 Construction is well underway at two office properties in the West Village Pointe development at 177th & Burke Street including Berkshire Hathaway Real Estate s new 47,000-square-foot offices and the 42,000-square-foot Advent Building. Berkshire Hathaway Real Estate is relocating from Bank of the West Business Park. Both buildings are planned to be delivered for occupancy in the first quarter of The 106,000-square-foot Pacific Life building in Aksarben Village is well underway and should be delivered late this year. The 122,000-square-foot Think Whole Person Healthcare facility just east of 72nd and Center opened on July 6th and will serve in excess of 54,000 patients. Vacancy Rates 15% 12% 9% Tetrad Property Group has broken ground on their new 54,000-square-foot headquarter building located also in Aksarben Village. The Suzanne and Walter Scott Foundation will also be a tenant in the building. Nebraska Realty, formerly Deeb Realty is relocating into in its new 45,000-square-foot headquarters building on the northwest corner of 170th just north of West Dodge Road and is scheduled for move-in by the first of October. Another office building under construction is the Tagge Rutherford Building located at 158th & West Dodge Road. It will be 29,000 square feet and is scheduled for a late 2015 completion. Given all of this new construction, minimal new availabilities will occur as most of the construction announced is build-to-suits. 6% Q4 13 Q1 14 Combined Rental Rates $30 Q2 14 Suburban Q3 14 CBD Q4 14 Q1 15 Q2 15 For the quarter, the Midtown, Miracle Hills, and Suburban West Dodge submarkets were the leaders in positive absorption. By submarket, the Miracle Hills submarket shows the lowest vacancy rate in the Omaha Office Market. This popular submarket boasts a low 2.4 percent vacancy rate for the quarter. Other submarkets falling below the overall Omaha vacancy rate are Suburban West Dodge (3.2%), Central West Dodge (7.7%), Regency (8.1%), Midtown (8.6%), Downtown (9.7%), and Southwest (9.8%). The Northwest submarket remains soft with a vacancy rate of 18.8 percent primarily due to the relocation of CSG Systems and a couple of other firms vacating over 300,000 square feet in North Park. By class, Class A continues to out-perform other classes with a low vacancy rate of 4.5 percent. The vacancy rate for Class B buildings is 14.1 percent followed by Class C buildings at 20.3 percent. It should be noted that equilibrium within the market occurs when the vacancy rates are between percent and is defined where market conditions do not favor tenants or owners. Given that so many of the superior buildings are now occupied, the Omaha office market definitely now favors Landlord s properties which are well maintained and conveniently located. $25 $20 $15 Q4 13 Q1 14 Class A Q2 14 Class B Annual Absorption (in Thousands) $300 $250 $200 $150 $100 $50 225,788 62,833 Q ,651 Q ,255 Q ,762 Q ,404 The largest single transaction for the quarter was United Way of the Midlands move from its own building at 17th & Harney into 47,449 square feet in the Federal Reserve Building located at 22nd & Harney. Other large transactions for the quarter include Dial America s lease of 20,262 square feet at 9744 Mockingbird Drive; ENT s purchase of a 12,000 square foot condo in West Dodge Office Park; Olsson & Associates, Waitt Companies and Right at Home leasing approximately 25,000 square feet in Aksarben Village IV. While larger transactions drove the scope of absorption within the office market, there were also a significant number of smaller $0 $-50 $-100 $-150 (137,933) YTD 2 Omaha Research & Forecast Report Second Quarter 2015 Office Colliers International

3 transactions completed during the quarter which accelerates the velocity of the market. There were 26 transactions of 2,000 square feet or greater completed in the quarter which is in-line with the historical 10-year average of 25 transactions within this square footage range per quarter. Regarding move-outs and new vacancy, there were only a couple of larger move-outs. Fidelity Title vacated 65,000 square feet in Aksarben Village Building IV in their move to North Park. CBSHome vacated 13,217 square feet from Davenport Street as they continue to consolidate at 158th & West Dodge Road. The Omaha and Nebraska economies as a whole remain strong. Nebraska continues to have the lowest unemployment rate in the country with an unemployment rate of 2.6 percent at the end of June, a 10 basis point reduction from the end of the first quarter of this year. The latest unemployment rate for the Omaha MSA was 2.8 percent at the end of May, an 80 basis point reduction over May of All eyes were again on Omaha in June as the College World Series was televised nationally for 12 days and experienced some of the highest viewership on record. Attendance at the games set an alltime record. Omaha also some strong accolades come its way in the quarter. CNBC reported Omaha as the second best city in the country for Millennial College Students. WalletHub named Omaha as the 5th Best City to Work for a Small Business. The Orpheum Theater along with The Holland Center brought Omaha acclaim as the second best Theater Venues in the Midwest. And SmartAsset named Omaha as 8th best city for New College Grads. Beyond the office market, there are several high-profile developments or re-developments all over the city. Such projects include Google s $1 billion dollar data center expansion, StratCom s new facility at Offutt Air Force Base, the $350 million Fred and Pamela Buffett Cancer Center at the Nebraska Medical Center, Nebraska Medicine s new surgical center, the Madonna Rehabilitation Hospital at West Village Pointe and the new Baxter Arena which will host games for UNO s hockey, basketball and volleyball teams this Fall. Large industrial projects are under way in Sarpy County. In conclusion, conditions in the Omaha office market remain vibrant and activity is expected to be steady and positive over the next 12 months. Build-to-suits still dominate new construction. Furthermore, there are several major employers looking for additional space within the city. The full employment in the area is both a curse and a blessing. The city and its leaders will not lose sight of the reduced unemployment base in the Omaha Metro and watch for the Omaha business community to become more assertive and creative in retaining and attracting employees to the area. National Office Picture quarter at 16.6 percent, down from a year ago at 16.9 percent and 100 basis points below its high of 17.6 percent at its peak in Reiss reports vacancy compression stalled this quarter because net absorption was slightly outpaced by new construction. With the economy and the labor market continuing to improve, demand should outpace new construction by a wide margin over time, resulting in more rapid vacancy compression than has occurred to this point. Absorption increased by 8.15 million square feet for the quarter and year-to-date absorption is an impressive 15.6 million square feet; a 22 percent increase over the same period in New construction was 8.3 million square feet for the quarter which was mostly preleased, according to Reiss. Washington, D.C., remained the tightest office market with a vacancy rate of 9.6 percent followed by New York City and Downtown San Francisco at 10 percent. The national unemployment rate at the end of the second quarter was 5.3 percent, down 20 basis points from the prior quarter and 80 basis points from the same time in On a monthly basis over the first half of the year the average gains in employment were a healthy 208,000 jobs per month. Employment increased in professional and business services, health care, retail trade, financial activities, and in transportation and warehousing. The largest decreases in employment were in government and the energy sectors. In conclusion, as long as the labor markets continue to recover and the Fed eases the expected increases in interest rates, we should expect an acceleration of the reduction of the vacancy rate in the national office market. The markets which are expected to experience the highest demand throughout the balance of 2015 are New York City, Boston CBD, the Bay Area and the CBD in Los Angeles. Office Investment Picture Sales of office properties are up 38 percent through May of this year over the same period in 2014 according to Real Capital Analytics. Average national cap rates stand at 5.1 percent for CBD assets and 6.8 percent for suburban assets. The largest transaction for the quarter was the sale of the Helmsley Building located at 230 Park Avenue in New York City for $1.2 billion or $990/per square foot. However, the Crown Building in NYC at 730 5th Avenue sold for $1.775 billion at an impressive $4,438 per square foot. Omaha recorded several notable office building sales in the quarter. The largest transaction was the sale of the former Millard Refrigeration Headquarters located at 4715 South 132nd Street encompassing 64,186 square feet for $4.5 million to the Eastern Nebraska Regional Agency on Humanity. Other significant sales were the 76,472-square-foot Burlington Postal Office located at 950 South 10th Street, sold for $1.45 million, and the 52,367-square-foot building located at 1515 South 75th Street sold for $3.75 million. On a national basis, Reis, an independent research commercial real estate firm, reported office vacancy was unchanged from the first 3 Omaha Research & Forecast Report Second Quarter 2015 Office Colliers International

4 Market Overview Omaha - Office Overview (Does not include owner occupied or medical-use buildings) VACANCY ABSORPTION CONSTRUCTION RENTS Total Vacancy Vacancy Net Absorption Construction Deliveries Under Const Asking Rent Submarket SF SF % Q2 SF 2015 SF Q2 YTD SF Class A Class B CENTRAL BUSINESS DISTRICT DOWNTOWN 4,719, , % 52,301 (3,293) $20.38 $17.85 CBD TOTAL 4,179, , % 52,301 (3,293) $20.38 $17.85 SUBURBAN CENTRAL W DODGE 2,474, , % (5,338) (32,637) $24.30 $19.28 MIDTOWN 1,989, , % (5,676) (1,773) ,300 $28.43 $17.84 MIRACLE HILLS 733,728 20, % 30,625 41, $19.75 $19.84 NORTHEAST 179,116 22, % (1,179) (567) NORTHWEST 1,662, , % 13,507 53, $18.66 OLD MILL 1,206, , % (9,625) 18, $18.49 REGENCY 987, , % (2,186) 2, $33.25 $20.81 SOUTH CENTRAL 2,225, , % 19,049 15, $25.00 $18.44 SOUTHEAST 1,027, , % $20.41 SOUTHWEST 1,415, , % (1,172) 8, $23.88 $18.52 SUBURBAN WEST DODGE 2,257,832 83, % 27,057 41, ,016 $28.17 $19.82 SUB TOTALS 16,196,589 2,035, % 67, , ,316 $26.03 $18.92 TOTALS 20,915,612 2,493, % 119, , ,316 $25.09 $18.86 BY CLASS Inventory Vacancy Net Absorption Construction Deliveries Under Const Available for Sublease SF SF % Qtr YTD Qtr YTD SF CBD Suburban CLASS A 6,502, , % 8,425 (46,763) , ,149 CLASS B 10,744,894 1,515, % 86, , ,300 27,343 65,769 CLASS C 3,668, , % 24,891 30, ,630 TOTALS 20,915,612 2,493, % 15.1% 119, ,316 27, ,548 Recent Transactions - LEASE AND SALE ACTIVITY Lessee/Buyer Lessor/Seller Property Size SF/Sale Price Milliman USA Security National Bank Three Pacific Place 19,133 Mutual of Omaha Douglas Emmett Managment, LLC Los Angeles, California 8,776 Hewlett-Packard Company IRET-MR9/Investors Real Estate Trust Farnam Executive Center 22,283 Wells Fargo Advisors California Place California Place 14,697 ENT Properties Country Life Insurance Co West Dodge Office Park $1,110,000 Eastern Nebraska Regional Agency on Humanity Millard (Refrigeration) Property Holdings LLC 4715 South 132nd Street $4,450,000 4 Omaha Research & Forecast Report Second Quarter 2015 Office Colliers International

5 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 MARKET CONTACT: Melissa Torrez Director of Market Research Omaha melissa.torrez@colliers.com CONTRIBUTORS: Barry Zoob Senior Vice President Mike Potthoff Vice President CONTACT US: Colliers International Omaha 6464 Center Street, Suite 200 Omaha, Nebraska USA $2.3 billion in annual revenue 1.7 billion square feet under management 16,300 professionals and staff About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,300 professionals operating from 502 offices in 67 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. colliers.com Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.