Opinions split on direction of downtown offices

The California company that plopped down $34.

6 million for the Bank of America building in Reno is convinced that downtown once again will be a leading office market.

Other's aren't so sure that downtown office buildings where vacancy rates stand well above those of the rest of the region will necessarily follow the resurgent residential and retail sectors.

To executives of Basin Street Properties, the Petaluma company that purchased the 248,000-square-foot, 12-story tower at South Virginia and West Liberty, it's clear that the wave of downtown redevelopment will break next in the office sector.

"It's a fantastic opportunity," says Scott Stranzl, vice president of Basin Street."The whole city is being gentrified.

There's a whole mix that hasn't been there before."

The company plans to further the redevelopment by the addition of retail space perhaps as much as 20,000 square feet on the first floor of the building it renamed 50 West Liberty.

But the upper floors of the building, home to tenants such as Bank of America, Lionel Sawyer & Collins and HMC Architects, are only about 75 percent occupied.

Across the downtown area, the office vacancy rate stands at nearly 18 percent, compared with 10.3 percent in South Meadows and about 12.7 percent across the entire market, says Tim Ruffin of Colliers International.

The high vacancy rate downtown is particularly noteworthy, he says, because about 200,000 square feet of inventory was taken off the downtown market in the past couple of years when the City of Reno purchased One East First Street and the county government purchased the building at 350 S.

Center.

Brokers cite a number of reasons that the downtown market remains weak.

For starters, Ruffin says,many of the professional companies that historically leased space in the downtown area decided to take advantage of low interest rates in the past couple of years to build their own offices in suburban areas.

"The garden office market, catering to small professional service firms buying buildings, has actually sucked much of the air out of the downtown leasing market," he says.

The age of downtown office buildings plays a role, too, The newest major office building in the downtown area Museum Tower, the old Porsche building at 100 W.

Liberty is nearly 20 years old.

That means that landowners may be required to invest in updating their buildings if they want to attract tenants, says Scott Shanks, vice president of the office properties group at Alliance Commercial Real Estate Services.

The occupancy rate at Museum Tower, purchased last year by Capstone Partners of Portland, rose by more than 10 percentage points to the mid-90 percent range from the low 80s after a renovation job.

Those projects are uncommon, Shanks says.

"Everyone is sitting on their hands until something happens," he says."We need to catch some energy into downtown again."

Simple economics will provide some of that energy, says Annemarie Huisman of Trammell Crow Co., which is handling leasing of 50 West Liberty.

"Land costs have been increasing.

Tenant improvement costs have been increasing.

That's making second-generation space more attractive," says Huisman.

Already, she says, downtown space is price competitive with new construction.

Space at 50 West Liberty, she says, is in the range of $1.90 a square foot, compared with $2.25 or more at much new construction.