After big Fernley deal, industrial developers shifting focus outside Reno-Sparks
Special to the NNBV
RENO, Nev. — The recent purchase of the Crossroads Commerce Center in Fernley is a solid indicator of where industrial developers will focus their attention in coming years.
Mark IV Capital of Newport Beach, Calif., purchased 4,300 acres from Logan Family Trust for $45 million, or just under $11,000 an acre. It’s the second-largest industrial land transaction in state history.
The Crossroads industrial center will be rebranded as Victory Logistics District and will be developed in several phases.
Phase 1 includes construction of 7.5 million square feet of new industrial space with a buildout timeline of up to 10 years. The first new building in the park district will be an 800,000 speculative building. Mark IV also plans to construct a full-service rail terminal to serve buildings within the district.
Fernley is a natural fit for new industrial development because available land for big box industrial product is not easy to come by in Reno anymore, says George Condon, west region partner for Dermody Properties.
Sure, there’s still available space, but most of the low-hanging fruit already had been developed. Industrial developers now have to deal with topography and flood zones, which likely will push much future development outside the Truckee Meadows as developers search for ground that requires less mass grading or flood protection.
“I think you will see new product north of the North Valleys, and you will see more product out east as well,” Condon says. “I don’t think you will see expansion in the south area — I just don’t know where it would go. North and east are reasonable bets for future expansion.”
‘No signs of slowing’ for e-commerce
While Dermody hasn’t closed escrow on any land holdings outside of city limits, Condon says the company is studying a handful of sites. Whatever it does next, he adds, likely will push the development envelope further north and east.
Although most of the land within the confines of Tahoe Reno Industrial Center was sold off in early 2018 to Blockchains LLC — that roughly 67,000-acre purchase marked the state’s largest-ever industrial land transaction — there are other landowners in the vicinity of TRIC who may decide to free up parcels for additional warehouse distribution space, Condon notes.
And there are still a handful of sites in the Truckee Meadows available for smaller infill projects, he adds.
Still, though, it’s clear that industrial developers looking to capitalize on the region’s strong e-commerce presence will be shifting their focus outside of Reno and Sparks in the near future.
“E-commerce distribution show no signs of slowing down and favors Reno as a very central western hub,” Condon says. “The buildings those (companies) demand are too big for infill. We are going to have to push north and east, and north is a little harder to define right now.
“East, of course with TRIC and Fernley, the land is there and the counties and cities are eager to see development.”
Better than the national norm
While Northern California and the Central Valley are a natural first look for tenant representative brokers bringing clients to the West Coast, there’s a nearly 100 percent chance that those clients also will give Reno are hard look, Condon says.
As California continues to act like California and make business more expensive and onerous, companies will continue locating in Reno and require new industrial buildings.
The Northern Nevada industrial market in total stands at nearly 90 million square feet of inventory, with vacancy just under 4 percent. Historically, when vacancy rates dipped below 10 percent it was considered a landlords’ market. Nationally, Condon says, that number has changed to about 8 percent — and our region is 4 points under that benchmark.
“We are sub-4 percent,” he says. “Rents are rising, and it is a very strong market. Supply and demand are generally in check. We have got anywhere between 2 million to 3 million square feet of new product being delivered each year, and net absorption over the last several years has trended above 3 million square feet.
“The local developers who are active — Dermody, Panattoni, Conco and some smaller ones — we all do a good job of not getting too far ahead on the supply side.”
But it’s not all good news
Despite the significant additions to regional industrial inventory, it’s still difficult to find suitable locations for certain tenants, says Chris Fairchild, vice president of the industrial team at Colliers International.
It’s especially difficult to find locations ranging from 5,000 square feet to 50,000 square feet, Fairchild notes.
“It’s extremely tight with very few options,” he says. “In some cases, depending upon the specific use, there are just one or two options that work, and sometimes you just have to squint and go with an option that doesn’t work (as well).”
The low vacany across all product sizes for newer industrial space — there’s still decent availability in many submarkets for older industrial product — has pushed rents up more than 50 percent in some instances, Fairchild adds.
That’s forcing existing tenants to sign new leases, which further decreases availability. And though Reno’s rental rates continue to escalate, the region still is a lower-cost alternative to other areas, Fairchild says.
“Rates are trending up across the West Coast,” he says, “but Reno still is a low-cost provider regionally in terms of rates even after all of the rent growth. We just need to see more product that’s divisible down to 50,000 and 100,000 so we have more options for our clients.”
Rob Sabo is a Reno-based freelance writer and a former reporter for the Northern Nevada Business View.
Heather Ashbridge, who started with Nevada State Development Corporation in 2008, previously served in several roles with the organization, including assistant vice president and loan officer. She is based in NSDC’s Reno office.