Meadowood, downtown office vacancies tighten

Office vacancy rates are tightening in the high-demand neighborhoods of downtown Reno and Meadowood, but don’t look for any new development soon.

And Tesla won’t help for a while, either.

Colliers International reported last week that the vacancy rate in the downtown area has fallen to 11.1 percent, and the vacancy rate in the Meadowood area stands at 11.6 percent.

Ordinarily, those are numbers that would have developers putting on their best sports coats for meetings with their bankers’ loan committees, but not this time.

“Our rents are just not high enough to warrant new development,” wrote Tim Ruffin and Melissa Molyneaux, the office specialists in the Colliers International office in Reno.

While low rents drag down potential returns, the additional cost of building a parking garage with any downtown projects also discourages new construction.

About the only stirrings come from McKenzie Properties and KCI Properties, both of Reno, as they plan office-related development on pieces of the former Rancharrah along South Kietzke.

Big blocks of vacant office space in South Meadows also are dampening the potential for the higher rents that might spur new development.

Ruffin said more than 19 percent of the office space in South Meadows is vacant, and another 1.4 percent is on the market for sublease.

Among the companies that have left South Meadows space in the past year are Alere Medical, University of Phoenix, InterTel and NJVC, the Colliers team reported, and the space recently vacated by the closure of Morrison University probably is headed back to the market as well.

Those moves are particularly troublesome, Ruffin said, because most of the South Meadows companies that departed were primary employers — the sorts of companies that bring fresh dollars into the region and drive the economy.

But the worst performing submarket in the region, Molyneaux and Ruffin said, is the area around Reno-Tahoe International Airport and central Reno. There, the vacancy rate stands at 20.2 percent as tenants continue to move out to higher-quality buildings.

The effects of Tesla’s plans for a giant battery-making plant at Tahoe-Reno Industrial Center probably won’t be felt in the office sector for several years, Ruffin and Molyneaux said.

Residential real estate will get a quick bump from the Tesla announcement, followed by retail as construction workers and Tesla’s permanent employees move to town and begin buying boats and burgers. Only then will the ripple effect reach office properties.

Sales of office buildings also remain slow, in contrast to the speculative buying of industrial properties.

Ruffin and Molyneaux said relatively few properties are on the market, a factor that should lead to higher prices. Potential buyers, however, are accustomed to recession-era bargain prices and are reluctant to go any higher.

NNBW staff