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Mixed bag for Lincoln commercial real estate in 2nd half of 2021 – Lincoln Journal Star

Lincoln’s retail market has bounced back somewhat from the downturn caused by the coronavirus pandemic, but the office market continues to struggle.

At the end of 2021, the city’s retail vacancy rate was 6.6%, according to a report from local commercial real estate firm NAI FMA. That was the lowest rate since December 2019, before the pandemic started.

The report said retail rents also increased, in what it called a “largely positive” performance for the sector.

“While the market is still experiencing some closings, confidence is gaining that the worst is over for retail,” the report said.

Jared Froehlich, a commercial advisor with NAI FMA, said in a video accompanying the report that while there haven’t been a lot of large retail store openings, Lincoln has seen a “high volume of smaller retail stores opening for business.”

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One notable exception on the large retailer front was Ross Dress for Less, which opened its first Lincoln location at Gateway Mall in October.

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The news was not as bright for Lincoln’s office sector, which saw its vacancy rate rise in the second half of the year.

According to the report, the rate was 9.5% as of Dec. 31, which was up from 9.2% as of June 30, although it was down slightly from 9.6% at the end of 2020.

The more concerning statistic in the office market, however, was the negative net absorption rate, which measures how much space was occupied during the period vs. how much became vacant.

According to the report, 140,457 more square feet of office space came open in the second half of the year than was occupied. It was the first time the city has seen more space become vacant than occupied since 2010.

The sluggish performance in the office market was due largely to a large amount of vacant office space downtown. The vacancy rate just for that part of the market rose from 12.3% at the end of June to 18.9% at the end of the year. On Dec. 31, 2020, the downtown vacancy rate was 10.1%.

Downtown also had negative net absorption of more than 381,000 square feet of office space in the second half of the year.

Some of the increase in vacancy was due to office buildings emptying out for redevelopment projects, but some of it also is due to companies paring down the amount of space they lease as they transition to more remote and hybrid work.

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Across the city, more workers are returning to the office, at least part time, as the pandemic eases, but uncertainly still remains as to when large corporate sites will fully reopen, the report said.

“The uncertainty of COVID’s lasting impact still divides how companies will return to the office,” Mike Ball, vice president of sales and leasing for NAI FMA, said in the report.

The one area of commercial real estate that has continued to thrive throughout the pandemic is the industrial market.

According to the NAI FMA report, the vacancy rate for industrial space fell to 1.6% at the end of 2021, the lowest rate recorded in at least 15 years. The rate was 3.2% at the end of June and 2% at the end of 2020.

Marc Hausmann, an associate broker at the firm, said in the report that businesses have filled more than 1 million square feet of space in just the past two years.

The absorption rate for industrial space just in the last half of 2021 was more than 550,000 square feet, the most since 2014.

The report says that due to the current shift in demand toward e-commerce sales, industrial demand will remain strong in Lincoln this year. But it also notes that “construction must ramp up” to meet that demand.

Reach the writer at 402-473-2647 or molberding@journalstar.com.

On Twitter @LincolnBizBuzz.

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