Industrial boom

A company that came to northern Nevada today looking for a big piece of industrial space say 200,000 square feet would have nearly nothing to look at.

That's no secret to development companies, and they're poised to begin one of the biggest recent flurries of industrial construction in northern Nevada.

Some of the projects will be speculative, built on the bet that companies looking for industrial and distribution space will arrive about the time the buildings are completed this year.

Other big projects ready to begin already have names attached 880,000 square feet for a Wal-Mart distribution center at the Tahoe- Reno Industrial Center east of Sparks, 200,000 square feet for a Sherwin-Williams paint manufacturing plant at Fernley.

"The vacancy rate is dropping like a lead balloon here," says Michael McCabe, vice president of leasing in the Reno area for DP Partners, which has three good-sized speculative projects on the books in coming months.

"We have very little large vacant space." In fact, only two big spaces are on the market 293,000 square feet formerly occupied by a State Farm Insurance warehouse in south Reno and a 420,000-square-foot building at Patrick vacated as San-Mar is moving its apparel distribution business back to Sparks.

And the overall vacancy rate in industrial spaces of all sizes is about 8 percent in Reno and Sparks.

The lack of giant-sized industrial space hasn't been an issue for companies looking at the area for new facilities, says Stan Thomas, manager of economic development for Sierra Pacific Power Co.Ordinarily, he says, the biggest users build their own facilities.

But developers see strong demand through the rest of the year for mid-sized space and guess that a big user or two might come along, too.

Panattoni Development broke ground a few days ago on a 405,000-square-foot speculative building at Lear Industrial Center in Stead.

Doug Roberts, a Panattoni partner in Reno, says the developer expects the building will be divided among several tenants rather than one large user.

Panattoni has enough land at Lear Industrial Center for a total of 1.8 million square feet of buildings, and Roberts said the company expects to begin work on the next building in the center as the first one leases up.

DP Partners,meanwhile,will begin a 258,000-square-foot speculative building at its Sage Point Business Park, just around the corner from the Panattoni property, and is finishing up the design work on another 230,000- square foot project next door.

The company also plans a 147,000-squarefoot addition to an existing industrial building on Capital Court in east Reno,McCabe says.

DP also believes it's near a deal to build about 250,000 square feet of industrial space at Patrick for a user who hasn't been identified publicly.

Trammell Crow Co.

plans to build 325,000 square feet of speculative space this spring in Stead.

"Stead is the next frontier for speculative development," says Par Tolles, Trammell Crow's Reno-based area director.

At Fernley,Wade Development Co.

Inc.

is studying the possibility of some speculative construction in advance of demand, says President Patty Wade-Snyder.

While speculative building always carries a risk that the developer won't be able to find a tenant, the current wave of construction also carries a risk that developers won't be able to get the rents they need to support higher construction costs.

Total construction costs are up about 25 percent in the last year, led by steel (up 35 percent), cement (up 15 percent) and lumber (up 15 percent).

Existing big-box industrial space is leasing for about 28 cents a square foot.

But with higher construction costs, Panattoni will be seeking rent of 31 cents a foot on its Stead project.

Tolles says Trammell Crow is looking for rents in the mid-30s at its newest speculative project.

Those higher construction costs dampened developers' appetites for speculative projects last year, says Dave Schuster, an industrial specialist with Grubb & Ellis NCG.

That, in turn, helped soak up much of the existing industrial space in the market and set the scene for this spring's strong resurgence, Schuster says.

Observers also expect a flurry of announcements in the next few weeks from other industrial and distribution companies that will build in the market.

Several deals are in the pipeline at Tahoe- Reno Industrial Center.Meanwhile, Jesse Haw of Hawco Properties says his company is in talks with several companies that may add even more construction to the 750,000 square feet of industrial space already planned at Hawco's Spanish Springs Business Center.

"It's going to be a huge year,"Haw says.