Market Status & Forecast – Reno – Sparks, Nevada and surrounding markets0

Posted by Thomas Miller, CCIM

Current Market: The local industrial market grew a huge 9% during 2007, to 68,500,000 sf. The net absorption continued to slow during the second half of 2007. With new construction and vacancies in existing space on the rise, the vacancy rate ended 2007 at just over 9%, almost double as compared to the start of the year. The market balance is now tipped toward a tenant friendly market for big box users and a well balanced market for most other sizes. Al-though vacancy rates in some smaller sized properties remains slightly tight. Reno’s over-night/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. The continually escalating cost of doing business in California continues to funnel a steady stream of business to Nevada. Midwest and Eastern firms seeking western distribution hubs is also a strong market for growth.

Lease Rates: Due to market vacancy rates climbing throughout 2007, asking lease rates have not increased in 2007, with some softening of concessions by developers for larger users to help fill these new and existing, big box properties. Overall availability is currently good with new and second generation product coming on line and should be adequate across size ranges. We anticipate competition between landlords will sustain lease pricing at their current levels but only until the vacancies start to fal 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 2008.

Land Prices: Demand for land has fallen off in 2007. Lenders increased scrutiny of loans and a general slowing of the economy has slowed interest in smaller parcels. Truckee Meadows land saw over $9/sf. Larger tracts had better sales totals as developers bought to add building inventory. Pricing has maintained in this sector as well at $3.50-$4.00+/sf.. We anticipate further rising land costs due to supply and demand and increasing water rights values in 2008 and beyond.

2007 Recap: 2007 was a decent overall year, but with continued slowing as the year advanced. 3.4 million sf of new construction was added. 6 million sf was absorbed, finishing the year with a 9.2% vacancy factor, the highest vacancy rate in many years. Demand has slowed and caught developers with new and existing inventory, resulting in the high vacancy in big box sizes. Landlord concessions in bid box are available, however in the other sizes have not been prevalent.
2008, 1st half forecast: The Northern Nevada region experienced slowing in 2007, with developers putting up record new construction. If vacancy rates go into a balanced 8% range, anticipate pricing to have upward pressures.

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About the Author

Thomas Miller, CCIM

Thomas Miller, CCIM is the president and broker of Miller Industrial Properties in Reno, Nevada. He has worked in industrial real estate since 1991, with 15 years of previous experience designing and building industrial warehousing and manufacturing facilities in the northern Nevada market. Contact Tom at tom@mipnv.com or 775-742-9891.

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