Current Market: The local industrial market of 67,000,000 sf. is currently experiencing a better balance in the market from growing vacancy rates largely due to a very high level of new construction. Up over 3 points from year start, the current vacancy of 8.7% is expected to approach 10% by year end due to more new construction coming on line and the typical Q4 slowdown in absorption. 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. 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 the market vacancy rates starting to climb again, asking lease rates have not increased in 2007, with some softening of concessions by developers, especially for larger users to help fill the new, big box properties. 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, as the market finds better balance. Average Pricing: 5-15ksf: $.72, 15-40ksf: $.39, 40-60ksf: $.33, 60-100ksf: $.35, 100ksf+: $.335/sf/mo./nnn. Taxes, Insurance and maintenance charges on new space are about $.075/sf/mo. Expect rents to maintain through 2007.
Land Prices: Low interest rates increased buyer interest in smaller lots, with rising pricing. Truckee Meadows land saw over $9/sf. Larger tracts in suburban market had increasing sales and pricing has also starting rising 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 2007 and beyond.
2006 Recap: 2006 was a record year. 3 million sf of new construction was added. 6 million sf was absorbed, finishing the year with a 5.5% vacancy factor, the lowest vacancy rate in a decade. Demand has forced developers to add new inventory despite high construction costs, resulting in slightly higher lease rates of about 6% compared to last year. Landlord concessions have remained slim. Annual net absorption was approx. 4 million sf. A record year all around.
2007, 2nd half Forecast: The Northern Nevada region experienced record growth in 2006, but demand cooled somewhat in 2007 to date Developers put up record new construction and now are holding tight on new starts. We see improvement in the vacancy rates to a better market balance in the 8%-10% vacancy range through 2007.