Ever-bigger boxes

The dramatically larger industrial buildings under construction in northern Nevada don't necessarily mean that dramatically larger companies are headed this way.

Instead, industrial developers and brokers say the jumbo-sized speculative buildings are a result of developers' desire to capture the economies available from construction of larger buildings.

In many cases, the huge buildings will be divided into smaller units and leases to multiple users.

But no matter how they're leased, the industrial buildings under development in the region are some of the largest ever built in northern Nevada.

Among them is the 601,000-square-foot building developed by ProLogis at Tahoe Reno Industrial Center east of Sparks. The company based at Aurora, Colo., also plans a 415,000-square foot building nearby.

Union Property Capital, meanwhile, plans a 500,000-square-foot speculative building at TRIC, and Trammell Crow has a 525,000-square-foot project nearby.

All this comes in a market where industrial development companies seldom built much more than 250,000 square feet unless they had a signed lease in hand.

The sharp rise in construction costs they're up a third over their levels of three years ago spur developers to look closely at the economics of larger buildings, says Aaron Paris, executive vice president chief operating officer of Reno-based DP Partners.

Developers haven't been able to recoup those higher costs through increased rents, so they're looking for economies of scale.

It doesn't cost much more, for instance, to bring power to a 500,000-square-foot building as it does to a project half that size. A multitude of other costs even items such as the expense of mobilizing a general contractor can be spread across an increased number of square feet.

In some instances, the economies of scale involved in a big building can bring the cost per square foot down by as much as 30 percent, says Dave Schuster, who handles industrial transactions with Grubb & Ellis|NCG in Reno.

Developers also have been encouraged to build ever-larger projects because they simply haven't encountered any negatives, says Doug Roberts, a partner with Panattoni Development in Reno. Among the company's projects is a 429,000-square-foot industrial building at Stead.

"Nothing has told us not to do it," he says of the larger projects.

Even though developers do back flips when they can lease big buildings to a single tenant, that's an unlikely outcome for most of the mega projects currently under development.

Instead, Paris says, they are likely to be broken into smaller pieces "smaller" being a relative term when leases cover 200,000 square feet.

"We're seeing very good demand in the 100,000-square-feet to 200,000-square-feet range," Paris says.

And Roberts said a number of proposals from potential users recently have called for big spaces the 310,000 square feet of distribution space just leased by Tire Rack at a new Trammell Crow building at TRIC, for instance.

Even as speculative industrial projects get bigger, Schuster says there's probably a limit to how large they can become.

For starters, he says, the cost savings begin to reach a point of diminishing returns particularly if more-expensive construction requirements are necessary for large spaces.

And Paris says there simply aren't a lot of parcels of flat ground in northern Nevada that are able to support gigantic industrial buildings.