Speculative industrial development unlikely this year

Leasing of industrial space in northern

Nevada is expected to be flat much of this year

and new speculative development is nonexistent.

But some observers say the market could

turn quickly.

J. Michael Hoeck, senior vice president of

the industrial properties group for NAI

Alliance, says the lone bright spot in the market

might be the fact that speculative construction

has all but ended, giving the owners of unoccupied

buildings a chance at housing tenants.

"Fortunately we don't have anything coming

online,"he says."Tenants have a lot of choices

and probably can drive some pretty good

deals as well.

"There could be a couple of deals that drive

a build-to-suit, but we won't see any speculative

development there is no funding for it, even

to acquire land,"Hoeck adds."It is at a standstill.

It would even take a special client to get a

build-to-suit funded in this market; you would

need pretty solid credit."

Gordon Zack, first vice president of the

industrial properties group for CB Richard Ellis,

doesn't expect to see any new industrial or

warehouse construction until sometime in

2010. Zack and Hoeck agree the first two quarters

of 2009 should see little leasing activity, but

things should change for the better by mid

summer.

Reno's reputation as a distribution hub still

should be attractive to companies looking to

relocate operations closer to their customers,

Zack says.

"I don't

think we will

have a banner

year, but that

we will kind of

limp along and

start picking up

in third and

fourth quarters,"

Zack says.

"A lot of people

still have plans

to move into

West Coast distribution

centers

from the Midwest or East Coast. They are

supporting the fifth largest economy in the

world California and they still have to

service their customers. They have to be on the

West Coast to service those customers."

Adds Hoeck: "We probably will see the

worst of this in the second quarter. The unemployment

numbers that come out after the first

of the year will be a big indicator of where we

are going. If we see high unemployment and

fallout from (weak) retail sales,we should probably

see a decline (in leasing) until the second

quarter."

Mike McCabe, senior vice president of the

industrial properties group for Colliers

International, says the region's vacancy rate

exceeds 12 percent of its 70 million square feet

under roof.As a result, there will be some

aggressive deal-making this year.

"It is a time for landlords to do anything

they can to keep their tenants happy and satisfied

in their buildings, and for tenants it is a

great opportunity to upsize or downsize or

upgrade their facilities with improvements you

might not otherwise be able to convince your

landlord to do for you,"McCabe says.

Tahoe Reno Industrial Center has the

region's highest vacancy rate at more than 23

percent. The massive industrial park east of

Sparks has more than 12 million square feet

under roof,with 2.82 million square feet sitting

vacant.

Hoeck says that 300,000 square feet was

expected to be filled in the fourth quarter of

2008, but "all of it comes at the expense of

Sparks. It is all relocations from Sparks to I-80

east."

One bright spot, Zack says, is that the region

still is enjoying at least some activity.

"We still have people looking at this market,"

he says."Some markets probably aren't seeing

a lot of that.We have clients looking at this

region right now.Reno has become more

attractive because housing is down now and we

finally have good employment numbers

people can't say it's hard to find an employee

base."

Adds McCabe: "All is not sour by any

means. There are going to be transactions and

deals made, and we will continue to see very

slight absorption. 2009 will be a year of trying

to lease up our vacancy.We just have to be careful

as a state not to resort to tax policies that

would be a death-knell for attracting new

industry to the state."

Hoeck says a number of clients have

expressed interest in the area, but so far it's just

been a lot of tire-kicking.

"There are some inquiries going around,

but that is what they are, inquiries,"he says.

"How serious they are has yet to be told."

Dave Schuster, senior vice president of the

industrial properties group at Grubb and

Ellsis|NCG, says many companies will take a

harder look at expansions and relocations to

northern Nevada in the first quarter.

"Those companies will have an idea of what

their business plan looks like,"he says."We will

see people come out here and take less space

than what they need but try to get reserves for

future expansion.

"Our market can turn on a dime,"he adds.

"There are still large companies looking to

come to our marketplace.We are optimistic that

a large user will come in 2009 and get the ball

rolling for 2010."