Current Market: Pessimists can point to lackluster statistics through mid year. Optimists can point to glimmers of hope and some upticks in the numbers. Gross absorption was the highest in 6 quarters, with vacancy edging downwards a bit. Clearly the dull national economy continues to influence our local market with Q2 gross absorption of 1 million sf., with modest leasing activity. Vacancy edged downward a tiny bit to 14.75%, just below the all time high. Unfortunately, net absorption through Q2 was a negative 1.4 million sf. New speculative construction continues to be zero and we expect this to continue into 2010. Asking rates on new space have softened. Firms moving into the area are finding excellent deals when developers have competed for the few tenants that are out there. Some submarkets have extremely high vacancy rates while others are more in balance. The I-80 east corridor, for example improved to 19%, but still has high va-cancy. The Stead submarket is slightly over 15%. Either of these markets provide excellent buy-ing opportunities for big box tenants. The industrial portfolio investors are patient and we are not anticipating market asking pricing dipping lower than they already are now.
Reno’s overnight/next day distribution to the 11 western states remains a strong factor for relocations with tax advantages, friendly business climate, favorable weather, high availability of trucking and reasonable workmen’s comp rates closely following. Tho the economy is a bit dull now, the continually escalating cost and burdens of doing business in California continues to funnel a steady stream of business to Nevada. Midwest and Eastern firms seeking western distri-bution hubs is also a strong market for Reno’s growth.
Lease Rates: As market vacancy rates have climbed through 2009, asking lease rates have now softened slightly. However effective rates on completed deals have been very competitive along with added concessions by developers. Some sublease spaces have pricing at unheard of rates, such as $0.15/sf/Mo.NNN. Overall availability is currently excellent with new and second generation product coming on line and should be adequate across size ranges. We anticipate competition between landlords will continue in this pro-tenant market, with developers aggressively pursuing every transaction. However, when the vacancies start to fall again; then we anticipate price escalations, as the market finds better balance. Average Pricing: 5-15ksf: $.72, 15-40ksf: $.38, 40-60ksf: $.35, 60-100ksf: $.34, 100ksf+: $.335/sf/mo./nnn. Taxes, Insurance and maintenance charges on new space are about $.075/sf/mo. Expect rents to maintain until vacancy drops; then increase in spring 2010.
Land Prices: Demand for land continues to be slow in 2009. Lenders increased scrutiny of loans and the a dull economy has slowed interest in smaller parcels. Truckee Meadows land saw over $9/sf. Larger tracts had very slow sales totals as well with the exception of TRIC on I-80 west of Reno. Pricing has maintained in this sector as well at $2.50-$4.00+/sf.. We anticipate static land costs due to supply and demand and static water rights values in 2009.
2009 forecast: The Northern Nevada region experienced a relatively dull absorption in early 2009. With developers putting up no new construction,. when the economy stabilizes, we see pent up demand for new space absorbing the available inventory quickly, then space may become somewhat in short supply with pricing following upward accordingly.