Industrial vacancy rate low; lease rates likely to rise

The vacancy rate in industrial space in Reno is at its lowest level since the end of 2001, and it could get much lower by year-end.

Colliers International says a 20 percent spike in construction costs discourages developers from building new space even as industrial growth is filling existing space.

At the end of the second quarter, Colliers said in a report last week, the vacancy rate in industrial properties stood at 9.24 percent.

That could drop below 8 percent by the end of the year, however, as new construction slows.

Paul Perkins, senior vice president for industrial properties at Colliers' office in Reno, noted that steel,wood and concrete prices all have risen since the start of the year, and higher oil prices also have contributed to increased construction costs.

The upshot: Several speculative construction projects announced earlier this year remain on hold while developers try to figure if rents will support the higher costs.

At the beginning of the year, Colliers estimated developers had more than 1.7 million square feet of speculative industrial space planned.

So far, they've built only about 624,000 square feet, and little more will be finished by the end of the year.

As the vacancy rate continues to drop, Colliers predicted lease rates will begin to rise later this year.

They've been steady in recent months although tenants aren't getting free rent or other incentives as the market has tightened.

Industrial rents historically have climbed by 1 or 2 percent a year in the Reno market, but the Colliers report noted they've been essentially frozen since early 2000.

Total occupied industrial space in the area increased by 548,098 square feet during the second quarter of this year, Colliers said.

Combined with the 832,975 square feet occupied in the first quarter, the market grew by about 3 percent during the first half.