Survey: Experts say market conditions ‘unfavorable’ for Northern Nevada – or are they?

Gov. Joe Lombardo appeared as the keynote speaker at NAIOP Northern Nevada’s 2023 Developers Forum on Jan. 26 at the Renaissance Reno Downtown.

Gov. Joe Lombardo appeared as the keynote speaker at NAIOP Northern Nevada’s 2023 Developers Forum on Jan. 26 at the Renaissance Reno Downtown. Photo by Jessica Garcia.

Northern Nevada industrial experts expect conditions to be unfavorable in the market for this year, according to NAIOP’s Commercial Real Estate Survey conducted Oct. 3 to Oct. 18.

But that shouldn’t preclude the possibility for opportunity, according to some. A panel of developers NAIOP hosted recently had the chance to show how to put professional optimism to good use for a growing economy.

The CRE Sentiment Index for Northern Nevada in October 2022 scored 44 out of 100 (the national average is 47). The survey was designed to predict general conditions in the commercial real estate industry throughout the following 12 months by asking professionals about conditions for their own projects and markets.

The survey, typically issued and tabulated twice a year since 2016 for regional professionals, for the first time this past fall was revised for its own market in Northern Nevada.

NAIOP’s breakfast Jan. 26 included a panel of speakers who discussed upcoming developments and Northern Nevada’s successes or demands to bring quality planning along with office or industrial product to its market to complement existing space and was moderated by Kyle Rea, chief operating officer of Tolles Development.

“Respondents expect higher interest rates, higher cap rates and a decrease in the supply of equity and debt in the next year,” Rea said in introducing the survey at the NAIOP breakfast on Jan. 26. “Their outlook for occupancy rates, face rents and effective rents is also less optimistic, though they still expect rents to grow. But it’s not all doom and gloom.”

Rea said respondents also expect a slower pace of construction costs — including material and labor — than in 2022 due to inflation and developers will maintain recent deal volume in the coming year as they complete the same dollar volume of new projects and transactions over the past year.

Rea asked the panelists whether the results accurately reflected current conditions and if their own projects and how they view Reno and the surrounding market.

Drew Zaborowski of Avenue 55, a real estate developer in Seattle that has finished the second phase of a 409,600-square-foot office and warehouse building located in the 411-acre master planned Spanish Springs Business Center in Sparks and is working on Spanish Springs III, a 144,000-square-foot Class A industrial building at the Corporate Park, called the results “cautiously optimistic” compared to Seattle’s market. He said with Reno one-third the size of Seattle, it is refreshing to have new Nevada Gov. Joe Lombardo speak of new business regulations to advocate for a varied tenant mix to maintain a healthy and diversified balance in manufacturing, commercial and retail.

“We’re starting to see layoffs in (the technology) industry in Seattle,” he said. “I would score it lower due to the uncertainty of what the fed’s going to do.”

Jessica Garcia/Nevada Appeal

Kyle Rea, chief operating officer of Tolles Development, center, leads a panel at NAIOP Northern Nevada’s 2023 Developers Forum on Jan. 26 at the Renaissance Reno Downtown.


Panelist Teresa Di Loreto of the Di Loreto companies and broker/owner of Challenger Real Estate Services, said her father, Perry Di Loreto, who has overseen the development of Damonte Ranch in south Reno, now has one of the few remaining parcels left on 127 acres in the region. Teresa Di Loreto said she is serving on the design team for the completion of one of three major projects and that the driving impetus — the Liberty Dogs catalyst project that will pair veterans with a canine companion — helped to spur the entire development north for another 2,000 acres and 6,000 residential units.

“What’s missing at that end of town is where do you go to eat, get a cup of coffee?” Teresa Di Loreto said? “We’ve had a lot of opportunities … and this opportunity presented another challenge to us in the design process because (employers) want to live, work and play. They want their employees to come back to work.”

Di Loreto said the community has received the Damonte Ranch development well so far since community members seek a balanced and well-planned project.

 “We are seeing lot of owner-occupants,” she said. “But then we also have outside people and are attracted to that type of environment.”

Panelist Todd McKenzie, president of McKenzie Properties, said Reno is starving for more office space in the region. His company’s new Skypointe project, preparing for construction at South Virginia Street and McCarran Boulevard, the “golden corner” of Reno’s real estate market, will provide 170,000 square feet of office and retail space.

“The reality is the last major office building was built in 1987,” he said. “We’re super starved and super excited.”

McKenzie said while it seems bringing businesses to fill retail space might be more challenging to attract and retain in smaller markets like Reno as more companies flock from the Bay Area, Northern Nevada continually misses key opportunities to house those that need key office space. It’s not just to embed company identities but to nurture employee lifestyles.

“(They’re) coming to relocate or open a satellite office and say, ‘What do you have in town that’s available and 50,000 square feet? Nothing? Oh, I guess we’ll go to Vegas or Phoenix,’” he said.

Paul Kinne, development manager with Panattoni Development Co., has supervised the acquisition, entitlement, construction and lease of industrial products.

Kinne said Panattoni’s North Valleys Commerce Center at 9460 N. Virginia St., a venture with California State Teachers Retirement System, cost the company some opportunities when it moved forward and what larger developers pursue from bigger projects. Now, Rea asked Kinne, Panattoni also has a project planned for south Reno.

“We went in with the intent that lot of these bigger developers are focused on bigger projects, but our biz model and what we expected a couple of years ago didn’t end up being the case on the cost side,” Kinne said. “We got our building in in normal expectations and then everything went up 50%. We’ve always had that trickle of companies from California. People are just desperate to get out of California with all the wonderful rules. That’s what’s showing up at the project.”

Lombardo also spoke, reinforcing commitments he made in his Jan. 23 State of the State address to diversify economic development through job growth, invest in education and improve quality of life for Nevadans.

He alluded to his recent visit with Tesla co-founder and CEO Elon Musk and the company’s plans to expand its space with a new $3.5 billion facility to build new all-electric semi-trucks and the intended partnerships that would create with the university system.

Lombardo also said he would be attending a meeting to discuss building out battery recycling startup Redwood Materials at the Tahoe-Reno Industrial Center to bring jobs to Northern Nevada.

“Let’s talk about reality,” Lombardo said. “If your vision is in line with my vision and you think it would be in the best interest of the state, help me in that aspect. … Help me help you ensure that Northern Nevada and in turn Southern Nevada and the state of Nevada is more successful moving forward into the future.”


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