The Industrial real estate market in Northern Nevada is experiencing a cooling. This trend started in the earlier quarters of the year and has continued through this fall. The year started with a low vacancy rate; about 5%. By year end, we expect to be at about a 10% vacancy. Market balance, adequate inventory for current demand is generally considered to be about 7-8%, with our market’s typical activity. This shift has occured due to two significant factors; unprecendented new, speculative construction coupled with a cooling of absorption by tenants. It seems like the broadly depressed housing market has indeed cooled the entire economy enough to have a ripple effect on manufracturers and distributers that would have typically leased the new inventory. 2007 has racked up about half of net absorption that we did in 2006. So there we have it, lots of new buildings and less new tenants to lease them. Supply is up, demand is down and simple economics dictates, right ? Well, not so fast.
Yes, overall the basic laws of economics do effect markets of course, but a deeper understanding of our market is needed. The Northern Nevada industrial real estate market is made up of approximately 67,000,000 sf of industrial property, both leased and owned. The great majority is leased. Of that the great majority of the leased property is owned by large, corporate real estate investing groups. Many of these operate diversified eal estate portfolios, with a widespread geographic basis. Some even internationally. These corporations tend to hold properties for long term and are no strangers to market downturns. It’s built into the overall portfolio performance to hold vacant space until market conditions turn around, rather to dump it at well below market rates. While a smaller private investor needs to lease his space to get an income stream going for fear of losing his property, these large corporations can be far more patient and wait for things to come back.
However, even tho many landlords are not anxious to lease space at extremely low rates, there definately are signs of landlord concessions on pricing and terms that are cropping up on deals going on in the market today that would not have been viable a year ago. Tenants, especially in specific size ranges which are currently overbuilt, are experiencing first year rates that have relaxed and lease terms that are more favorable. Landlords are becoming more aggressive to get tenants into their vacant properties.
This shift to a better ‘buyers’ market serves the saavy tenant well if he can play his cards right at this time. There are a number of things tenats can do at this time to take advantage of this market. And we wiill explaore these in my next Blog.
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