We pride ourselves on having our fingers on the pulse of the commercial real estate market, and knowing what products are trending “hot.”
Sometimes we look brilliant, and sometimes we’re more surprised than anyone to see a certain property sell for a given price — or sell at all. Often, because our market is fairly small — considered a sub-sub-sub market — a “trend” may mean four similar deals transacted within a month. Because we know this “small” market like the back of our hands, and appreciate it for all of its unique characteristics, including its small size, we do not ignore even these seemingly small or insignificant trends.
In the past two months, we have seen several “small” office lease deals transact in the 1,000-2,000 square feet range. While this size range might be considered small overall, they are actually the deals that are most prevalent in Carson City, and they’re our bread and butter. While confidentiality and decorum dictate we not disclose the details of specific transactions, we can tell you that generally, we are seeing office space lease around $1/SF/NNN.
These deals are especially important — when the Carson City office vacancy rate is running 14.7 percent, every deal helps.
Timeout: Some of you may be wondering what “/NNN” is you see everywhere, so let’s pause to explain. NNNs, or triple-nets, represent the taxes, insurance and maintenance costs of operating a commercial property.
A property that’s advertised as triple-net is essentially saying the tenant will pay the operating costs associated with running the property, in addition to a base rental amount. Depending on the age, location, and type of property, triple-nets for office and retail property in Carson City typically run between $0.20 - $0.50/SF.
So, if a 1,000 SF office leases for $1.00/SF/NNN, what this actually means is base rent is 1,000 SF x $1 equals $1,000/month, and if the triple-nets are running $0.30/SF, then that tenant’s additional monthly costs would be 1,000 x $0.30 equals $300/month, for a total of $1,300/month.
Back to trends: We would be remiss if we spoke of “current trends” without mentioning industrial space. We reported in January the industrial vacancy rate in Carson City was 7 percent, and it has dropped even lower since then. Again, in the past four months we have seen several industrial (warehouse/ manufacturing space) leases from 1,000-7,500 SF. The small 1,000- 2,000 SF warehouse spaces are all but gone now, and it won’t be long until we’re completely out of warehouse space. This is good for landlords, as rental rates are currently running $0.40 - $0.45/SF/NNN, and rates are going to increase, because of lack of supply and increased demand. But this is bad for tenants, who obviously don’t want their rents to climb, and also tough because it’s meant we’ve already had to turn away several new businesses, who wanted to locate in our area but were forced into Reno because they couldn’t find the right spaces available locally.
In our market, almost every existing industrial building under 50,000 SF is filled. These industrial jobs are primary jobs, which are the foundation of a healthy economy. Primary jobs are typically higher paying, and lead to job creation of office and retail jobs. Carson City is the manufacturing (primary jobs) center of the state, with a 12 percent manufacturing base per capita, so we’re doing well in the area of primary jobs, but we can always do better. When it comes to jobs, we always have room for more.
A constant question we hear is in regards to the status of the Capitol Mall.
This project is likely the single largest private office development project ever proposed in Carson City, and projects of this scope take a lot of time, people, and money to be implemented properly. This project is no different. So at this time, while we remain optimistic, this project is subject to change in scope, appearance, and location as it moves through the lengthy entitlement process. We anticipate it may take several more months to finalize the details for public release.
The good news is in light of the 14.69 percent office vacancy rate, the goal of this project is to attract new, technology-based, IT companies from around the world. So far we have Letters of Interest from companies based in San Francisco, Southern California and Poland. We have long stated that cannibalizing existing tenants for the benefit of a new project in Carson City doesn’t help the older, established properties that we are pulling them out of. So the Capitol Mall project would feature high paying jobs in the tech industries, the types of jobs our children will want to stay here or return here to enjoy.
Brad Bonkowski and Andie Wilson are broker/owners of NAI Alliance Carson City, a commercial real estate brokerage. They may be reached at (775) 721-2980.