Offices strong, industrial properties still soft

Construction of new industrial and distribution

space in northern Nevada ground

nearly to a halt this year as the national

economy softened.

The market for office space, which isn't

as closely linked to the national economy,

had one of its best years ever.

Expect more of the same on both sides

of the commercial real estate business this

year.

At the start of 2002, developers planned

11 big industrial and distribution projects

totaling 1.6 million square feet in the Reno-

Sparks area.

By the end of the year, however, they'd

built only seven buildings totaling just over

500,000 square feet, noted Dave Simonsen,

a vice president at Colliers International.

DP Partners, a key player in the Reno

industrial market, hasn't developed any new

buildings in northern Nevada for two years,

and this year cancelled or delayed three

projects totaling 900,000 square feet.

"DP Partners as well as other developers

made a wise decision freezing new projects.

Otherwise, vacancy would be about 12 percent.

Thankfully, the vacancy rate increased

only slightly to 9.8 percent," Simonsen said.

The biggest single project launched in

the market this year was the 385,000-

square-foot General Motors warehouse in

Stead.

For all the weakness in the market, however,

Reno was one of the handful of cities

in the nation where new industrial space

was absorbed. In most, more space stands

vacant today than at the start of the year.

As the national economy improves, however,

so will the demand for industrial and

distribution space in Reno.

European and Asian markets are showing

signs of economic recovery, said a recent

analysis of the market by Grubb & Ellis

Nevada Commercial Group, and the

increased amount of shipping from the Port

of Oakland to those markets promises to

benefit Reno.

Despite the slow growth in the market

for industrial spaces, Simonsen said purchasers

hoping to buy investment-grade

properties have a difficult time finding quality

buildings for reasonable prices.

That, he said, reflects the continued outflow

of money from the stock market by

investors seeking higher returns in real

estate.

In the office market, meanwhile, Reno

was one of the few cities in the West Coast

region to post gains its office market has

grown by 35 percent to more than 7.4 million

square feet in the past five years.

Still, vacancy rates vary widely from

neighborhood to neighborhood.

Downtown Reno's vacancy rate is estimated

by Grubb & Ellis to stand at 7.7

percent at year end. The company projected

that demand will remain high for downtown

space through 2003 with no significant

amounts of new space coming into the

market.

In the South Meadows area, however,

Colliers International estimates that the

current vacancy rate of nearly 20 percent

won't move much through 2003.

"This lack of activity clearly reflects the

impact of a slow national economy," said

Tim Ruffin, a Colliers vice president.

"South Meadows has traditionally attracted

the basic industries of our area."

Things in South Meadows are sufficiently

weak, Ruffin said, that Employers

Insurance recently renewed its lease in the

Thomas Creek Office Park at 9790

Gateway Drive at a 25 percent discount to

the previous rent.

"Luckily, other landlords have not followed

suit," Ruffin said.

The hottest office in Reno continues to

be the Meadowood area along McCarran

Boulevard and Kietzke Lane. In fact, the

only major office project now under construction

the 60,000-square-foot Sun

West Bank building in the Mountain View

Corporate Centre is at the southern

edge of that office market.