Overhead view of the Old Virginia portion of McKenzie Properties Management, Inc.’s South Reno Industrial venture — a six-building, 530,000-square-foot, Class A project spanning three key intersections in South Reno. Old Virginia, encompassing three buildings at 392,820 square feet, is slated for delivery in summer 2022.
Photo: McKenzie Properties
CORRECTION: This story has been updated to correctly identify Todd McKenzie as President of McKenzie Properties Management, Inc., and to correctly report the South Reno Industrial project is under the umbrella of McKenzie Properties Management, Inc. The original version of this story incorrectly referred to Mr. McKenzie as President of McKenzie Properties, and incorrectly reported the company as McKenzie Properties. In fact, McKenzie Properties Management, Inc. and McKenzie Properties are two different companies. The NNBW apologizes for the errors.
Big box industrial developers can seemingly do no wrong these past few years. Box after box is being leased full even as they rise out of the ground in sites across the region.
New space for smaller light industrial and flex users, however, has been somewhat of a neglected product class throughout this latest extended round of boom development, industrial developers and brokers say.
Outside of Panattoni Development Company’s Longley Commerce Center in the South Reno submarket, the bulk of new Class A industrial buildings being erected is being designed to house large e-commerce, manufacturing or distribution tenants.
However, McKenzie Properties Management, Inc.'s latest venture — South Reno Industrial, a six-building, 530,000-square-foot, Class A industrial project in South Reno — targets that often-overlooked tenant class, says company President Todd McKenzie.
“Those size ranges have been neglected by everyone for a long time, including us,” said McKenzie, whose grandfather, E.W., ushered in the use of tilt-up warehouse development in Northern Nevada in the late 1950s. “The smaller users — mid-box and light industrial users — have been neglected for a long time, and there is a dire need to fill that void.”
SMALLER SPACE IN SOUTH RENO
Although big box developers can subdivide their buildings to accommodate smaller tenants, much of the industrial product developed over the past few years has simply been swallowed up whole by single tenants leasing the entire facility, sometimes before the building is even completed.
Crews work on the 84,000-square-foot Double Diamond industrial building, located at Double Diamond Parkway and Trademark Drive, as part of McKenzie Properties Management, Inc.'s South Reno Industrial Project.While that’s good for bumping up absorption rates — gross absorption in the second quarter of 2021 was just under 1.95 million square feet, commercial brokerage Kidder Mathews reported — it’s also created a void in smaller spaces for tenants seeking new class A space under 50,000 square feet.
McKenzie said his company spent two years assembling various land packages to develop the six buildings that are being marketed to smaller industrial users looking for space in South Reno.
The company’s latest land addition was two parcels totaling 24.82 acres on Old Virginia Road just south of the massive Barnes and Noble distribution facility. McKenzie closed on the purchase in April and was assisted during the sale by the industrial team at Dickson Commercial Group.
McKenzie Properties Management, Inc.'s industrial project on Old Virginia includes three buildings of 126,000, 124,000 and 141,000 square feet. An initial plan calls for subdividing space into equal layouts of 10,000 or 20,000 square feet in one building, McKenzie said, while another building would be larger spaces ranging from 30,000 to 50,000 square feet.
“It’s meeting that space in the market that just hasn’t been met,” McKenzie said. “We are hitting a desperate need for that kind of space.
“There is literally zero supply for some of these units, but the demand is there,” he added. “The companies coming in are not all big boxes. Some are 20,000- to 50,000-square-foot users who just want to get out of California, or they are regional or national suppliers.”
Conceptual look at the 84,000-square-foot Double Diamond building, expected to be delivered this September.Target businesses include those requiring modest retail storefronts to support backroom operations — think a small brewery or motorcycle shop, as well as local/regional vendors and construction contractors, HVAC, and other trade shops, McKenzie said.
‘THE BEST PARCELS LEFT IN TOWN’
There also are fewer and fewer opportunities left to erect large buildings of any product type in South Reno. Much of the land zoned for commercial real estate is either built out or already in the hands of developers.
Tenants at Old Virginia Street can plant their flags in one of Reno’s premier industrial submarkets with storefront signage facing Interstate 580, McKenzie said.
“We think these are the best parcels left in town in terms of location and proximity to amenities, roads and freeways,” he said. “We have been working on this for a long time to make it come to fruition, and now it’s here. This location is the best submarket for this type of product.”
Grading should begin in August, he added. All three site pads will be built out during initial mass grading, but vertical construction likely will begin on a staggered schedule. The first building is targeted for delivery by summer of 2022, McKenzie said, with the project wrapping up sometime in the fall.
However, supply chain issues and other concerns causing delays in the construction industry could impact delivery, he noted, possibly pushing the finish date into next winter.
Conceptual look at Building B (25,500 square feet) of the 52,700-square-foot, two-building Trademark portion of McKenzie Properties Management, Inc.'s South Reno Industrial Project. Delivery is expected by the second quarter of 2022.
McKenzie Properties Management, Inc. is also in the middle of constructing three other new Class A flex industrial buildings on Double Diamond Parkway and Trademark Drive. An 84,000-square-foot facility underway on Double Diamond is expected to come online this September. A tenant already leased 42,000 square feet, with the remaining space being marketed as either 40,000 square feet or two spaces of 20,000 square feet, McKenzie said.
The two buildings totaling 52,700 square feet on Trademark Drive, meanwhile, are expected to come online around March or early April. Those buildings were designed for flex industrial — smaller front office and warehousing businesses that require between 4,000 and 12,000 square feet.
PROJECT DELAYS IMPACTING VACANCY RATES
Steve Kucera, executive vice president with the industrial team at Kidder Mathews, says the new industrial developments in South Reno are likely to fill up quickly, like Longley Commerce Center did.
“It’s our most sought-after submarket,” Kucera told the NNBW. “And we need more class A industrial product in a highly desirable submarket. Our market is tight, and we need more product across all size ranges.”
Overall industrial vacancy is hovering around 2%, Kidder Mathews reports, and there is about 6.6 million square feet of new industrial construction in the pipeline. Those buildings could ease the pressure on vacancy, but there’s likely to be some lag time over these next few quarters until projects begin coming online, Kucera says.
“There’s going to be a delay in deliverables from the time all these new buildings are being constructed, probably into Q4 or even Q1, which will tighten vacancy rates,” he said. “Landlords have their foot on the gas and are pushing rates, pushing terms and all other metrics of leases. The strong market fundamentals back it up.”SALES, LEASING ACTIVITY REMAINS STRONG
Industrial sales and leasing activity remained strong in the second quarter across Northern Nevada, according to CBRE’s most recent quarterly report, published July 21.“Distribution, logistics and manufacturing tenants remain the most dominant players in the market … highlighting the massive demand for space on new construction as vacancy rates dip lower, and quality existing space dissipates,” according to the report.The largest lease signed in Q2 was by Rocky Brands (350,000 sq. ft.) at 425 E. Sydney Drive in the East Valley submarket. Other notable new leases include Nathan James Furniture (132,750 sq. ft.) at 12475 Mustang Road in the East Valley, as well as FTDI West (286,487 sq. ft.) at the recently delivered 6125 Echo Avenue in the North Valleys submarket.Meanwhile, sales activity in Q2 soared past 4.3 million sq. ft. in overall industrial product trading hands.“The capital market sector was highlighted by one of the largest portfolio sales the market has seen in recent history as institutional investors have increasingly looked for opportunities to buy in to the Reno industrial market,” according to the report.Starwood Capital Group purchased a 19-building portfolio from Blackstone totaling 3.4 million sq. ft. and set a record low cap rate for a portfolio sale in the process, coming in at 4.25%. Some buildings included in the portfolio are 475 Lillard Drive (383,380 sq. ft.) in Sparks, 12055 Sage Point Court (265,448 sq. ft.) in North Valleys, and 10991 Lear Boulevard (263,500 sq. ft.) also in the North Valleys submarket. Go to bit.ly/3BvDZ37 to read the full CBRE report.NNBW Editor Kevin MacMillan contributed to this report.