Nevada is experiencing one of the largest periods of growth it has seen in a long time.
With the major changes, Nevada is quickly becoming one of the first places that business leaders think of when considering relocation or expansion of their companies. From the business-friendly environment to the abundant tax breaks, the state is gaining prominence as a gateway to western states for all industries. From manufacturing and distribution to data centers and technology solutions, Nevada has made its mark on the map as a pro-business environment. In 2019, this growth will likely continue both regionally and statewide with the commercial real estate industry playing a key role in the growth.
Northern Nevada’s industrial market ends the first quarter of 2019 on a strong note. With over 880,000 square feet of positive net absorption and over 1 million square feet of gross absorption, due to many large lease transactions being signed. The outcome of this has caused a 9% increase in asking rents. As absorption remains strong, there is strong activity coming for both new construction and investment in the industrial market. Since 2015, supply has increased approximately twenty percent and a wave of new construction is underway to meet the demand for industrial space in Nevada. More than 2.9 million square feet of new industrial is underway for the northern Nevada region. In addition, investment sales in the region are reflective of the occupier interest in the area. One of the most notable investment activities to take place thus far in 2019 was Dermody Properties’ sale of a 54-building national portfolio to Colony Industrial. The portfolio traded for $1.16 billion. The sales volume in 2018 surpassed the long-term average because of transactions like this. With four large portfolios totaling over five million square feet currently on the market or in escrow the opportunity to enter the Reno industrial market as an investor has never been greater.
Reno office vacancies have been in the single digits since 2017. This is atypical for the region but could be due to the influx of businesses moving to Nevada as well as a lack of new office construction. The vacancy rate is currently 8.4% sitting just below the national average of 9.7%. Northern Nevada’s low vacancy has allowed for healthy rent growth while remaining cost effective for tenants. The Meadowood submarket features the highest rents in Reno, primarily due to the area’s abundance of mid to high end inventory. Only about 10 percent of the current overall inventory is upper-tier product, making it very desired when it can be found. Office inventory is unlikely to change drastically in the coming years. Only 10,271 square feet of new office space is under construction with a majority of that being made up of smaller scale projects; however, there are several large-scale projects on the horizon that may tip the scales. Office investments reached an all-time high in 2018, with several large transactions taking place including the sale of the Employers building in South Meadows for $25.3 million and 885 Trademark for $20.4 million. The most noteworthy sale of 2019 was the recent acquisition of 5250 S Virginia by McKenzie Properties. While local investors continue to make moves in the sector, there continues to be a steady stream of outside investors primarily from California markets.
Retail has been slower to regain momentum post Great Recession; however, market fundamentals such as a more diversified economy, population growth and above average median household incomes point to a strong recovery throughout 2019. The vacancy rate has steadily been decreasing since 2012 from an all-time peak of 13% down to a current vacancy rate of 6%. This decrease is in part due to demand and in part due to limited new supply coming on the market. Reno is feeling the benefits of heavy in-migration. Population growth is triple the national growth rate; coupled with a median household income that is outpacing the U.S. average. The increase in population and income for households will point to a strong future for retail in the area. Rent in Reno’s retail sector remain steady, the average asking rent in Reno is $1.48 per square foot monthly. This is most likely due to the limited growth overall in the sector. The most notable submarket is South Reno, with an average rent that is approximately 25% above the average for Reno. This area is experiencing an increased demand and has become one of the most populated regions of northern Nevada. There has been a recent resurgence in construction of retail projects, most notable is the Village at Rancharrah, part of a larger development this center will serve the surrounding households with local/regional retailers. In addition, there are major renovations underway on the former Shoppers Square mall which is located across the street from the Park Lane mixed use development.