Dare We Say It? Northern Nevada’s Industrial Real Estate Market Turns the Corner0

Posted by Thomas Miller, CCIM

Northern Nevada’s Industrial Real Estate Market Turns the Corner

Since 2008, we have heard positive economic predictions that have flopped time and time again. The fallout of those sadly mistaken forecasts was that over the past few years, no one dared to make any “We’ve turned the corner!” predictions. Until now, that is, because northern Nevada’s industrial real estate market really has! Onto the proof:

  • Through 2013, we have had excellent market activity approaching record absorption rates. Certain market size segments are all but unavailable, with only two locations remaining for 200,000 sf and up, and nothing available for 400,000 sf and up. The ‘big box’ market segment has already experienced raising rents in the 15% range due to the final few transactions realizing supply/demand economics. Furthermore, next quarter has already logged in some substantial deals and we are looking for a sixth consecutive quarter of decreasing vacancy.
  • Another factor is that in previous quarters, positive absorptions were balanced by firms downsizing or moving out of the market. This had the effect of keeping the area’s net absorption rate modest, maintaining overall vacancy high and keeping rents low. The recent strong net absorptions are signs that overall economic recovery is gaining footing.
  • Another observation is the return of the midsized transaction, defined as the 30,000 to 60,000 sf sized user. I characterize these firms as the small to midsized firms with a base operation on the East Coast or in the Midwest. These firms have been servicing their West Coast clients via truck freight. Now we are seeing these firms coming back into the market to build their Western presence, cut freight costs and improve delivery times to their eleven Western state customers. I view it as a very positive sign that these smaller firms feel confident enough with their mid and long range business models to use resources to expand in this way.  

The year is shaping up to the point that it should become the one we can point to and say, “After seeing the all-time market lows, 2013 saw the beginning stages of recovery in this economic cycle.” If the current trends continue, we should be seeing new industrial real estate ‘big box’ products built on speculation by early 2014. Rents should be able to bridge the gap to allow a reasonable return on investment, and we will be moving ahead to a balanced market where landlords are no longer required to be the last man standing to secure a lease transaction. And because all boats rise together on the tide, that’s the type of market that will benefit both landlords and tenants alike.

Our posts are intended to educate commercial real estate users so they can make better decisions in their real estate use, investments, buying and selling. We encourage your input and commentary. If you are enjoying these posts and finding them useful, help spread the word via Facebook, Twitter, LinkedIn, Google + or email with the buttons above.

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.

Our posts are intended to educate commercial real estate users so they can make better decisions in their real estate use, investments, buying and selling. We encourage your input and commentary. If you are enjoying these posts and finding them useful, help spread the word via Facebook, Twitter, LinkedIn, Google + or email with the buttons above.

Commercial and Industrial Properties Commercial and Industrial Properties Commercial and Industrial Properties Commercial and Industrial Properties Commercial and Industrial Properties