Building firms drive demand for area office space

Reno and Sparks appear on pace to set a record for absorbing office space.

And that record pace is coming despite the near disappearance from the market of California companies moving their office operations to Reno, says Tim Ruffin of Colliers International.

Ruffin, a senior vice president who specializes in office buildings for Colliers, estimated a few days ago that at least 186,000 square feet of space was absorbed in new and vacant office space since the start of this year.

About 103,000 square feet was leased in large office buildings those of 10,000 square feet or more while 86,000 square feet in smaller garden office projects was purchased or leased.

Colliers estimated the vacancy rate in larger office buildings at 13.13 percent at the end of the second quarter compared with 12.27 percent at the start of the year.

Much of the demand for office space, Ruffin said, is coming from homebuilders such as Lennar Homes, which leased 28,000 square feet at the second building in Reno Tahoe Tech Center in South Meadows.

Adding to the demand for space, he said, is leasing activity by engineers, planning firms, mortgage lenders and others riding the residential boom.

The sharply rising home prices that accompanied the boom, however, appear to be dampening some of the demand for office space.

"We're not seeing office users coming over from California like we did in the past,"Ruffin said.

He said some California companies scouting Reno and Sparks have said recently that the area's home prices no longer provide any advantage compared with the Golden State.

About 93,000 square feet of space was added in garden office buildings in the first half of this year, and prices for newly constructed shells for garden offices range upwards from $200 a square foot.

Still, Ruffin said, demand remains strong.

Low interest rates continue to encourage businesses to buy their own offices rather than to continue leasing.

Their decisions to move to new buildings, however, puts pressure on landlords in older buildings.

Although office rents generally are rising by about 3 percent a year, Ruffin said the increases are lower in older office buildings where landlords need to fill vacant space.

The owners of second-generation space get some help,meanwhile, from high

tenant improvement costs in new buildings.

Those costs, Ruffin said, generally run more than $50 a square foot, and tenants need to pick up a good chunk of the cost.

That encourages some office users to look for older space that's already finished.

The price of land for new office buildings, Ruffin said, hasn't increased much but little is available as developers tie up the last remaining parcels in the Truckee Meadows.

"The wild card," he said,"is the potential office development in Spanish Springs.

The jury is still out as to demand in that area, although land has been set aside for future development."