Current Market: The short version is: The dull national economy continues to influence our lo-cal market with annual gross absorption of 3.5 million sf; just 70% of annual averages. Vacancy is at an all time high at 13%, leasing activity is down 30%. New speculative construction has ground to a halt. Asking rates on new space have softened, firms moving into the area are finding excellent deals when developers have competed for solid, credit the 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 has a 25% vacancy, while the Stead submarket is slightly over 12%. Either of these markets provide excellent buying 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: Tho market vacancy rates have climbed through 2008, asking lease rates have now softened. 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 – $0.20/sf, 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 asking Pricing: 5-15ksf: $.70, 15-40ksf: $.37, 40-60ksf: $.34, 60-100ksf: $.33, 100ksf+: $.325/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 late 2009.
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 2008, with developers putting up record 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.