COVID’s long-term impacts to commercial office space in Reno-Sparks still unfolding | nnbw.com
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COVID’s long-term impacts to commercial office space in Reno-Sparks still unfolding

Rob Sabo

Special to the NNBW

The 15-story tower at 300 E. Second St. in Downtown Reno is one of three Class A office buildings owned and managed by Basin Street Properties.
Courtesy Photo: Basin Street Properties
EDITOR'S NOTE: This is the second in a 5-part series of stories in the NNBW's newest quarterly edition of the Northern Nevada Real Estate Journal, which looks at various statistics, trends and news updates regarding commercial real estate across greater Reno-Sparks. You can read the full series below, or check out the Wednesday, July 29, print edition of the NNBW.

RENO, Nev. — It’s been an interesting year in the commercial office sector, says Blake Riva, president of Basin Street Properties.

The year started ahead of plan, and solid market fundamentals were powering a positive outlook for Basin Street’s extensive portfolio of office properties in Northern Nevada and Northern California.

Then March came, and the world changed with the arrival of the COVID-19 pandemic. The coronavirus sent tidal waves throughout the commercial office sector as companies scrambled to navigate the pandemic’s ever-shifting effects on businesses.

The full effects of the pandemic on commercial office space across America likely won’t be revealed for years, but landlords remain on edge as millions of white-collar workers transition to home offices — and those who remain in the office work under new safety standards and distancing protocols.

It’s a dynamic environment, Riva told NNBW during a recent interview.

“We have spent a great deal of time communicating with our tenants to understand how their business model has transitioned over this pandemic timeframe and also to let them know what we are doing to provide them with the best environment we can,” he said. “Companies are adjusting and adapting on a daily basis to the latest orders, directives and mandates that are coming out from governmental agencies and health organizations.”

Navigating shifting workforce trends

Some companies likely will shelve major decisions and ride out COVID-19 and its shifting best practices, Riva said. The pandemic already is redefining how tenants use their office space, though.

Over the past few months, Riva said, some Basin Street tenants shifted to remote work, and others sent portions of their workforces to home offices. Essential office businesses, meanwhile, continue to work at 100 percent capacity.

It’s a full spectrum of clients adjusting to new office requirements during the pandemic while also providing safe and healthy work environments for employees, Riva said.

Basin Street has been communicating with all its tenants to figure out where they are on that spectrum so it can provide the best working environment for tenants that have remained working onsite, Riva added.

Property owners also are closely monitoring the pulse of emerging work-from-home and other workforce trends — and those trends could shake up the commercial office market.

Blake Riva
Courtesy Photo

As COVID-19 forced everyone home, some companies found they could operate efficiently and effectively as remote organizations. Their long-term business plans may include that approach, and the fear for landlords is that hordes of remote teams could lead to a mass downsizing and weakened demand for office space.

‘Tour activity is increasing’

On the other side of the equation, Riva notes, some tenants have inquired about expanding their office space so they can provide a better environment for team members in terms of safe distancing. The reality, he adds, is that the long-term ramifications of the pandemic and its full effect on America’s workforce are still unfolding.

“Over time, we will see a little of everything,” Riva said. “It’s going to take months and maybe even years to really understand the full net impact of the pandemic on commercial real estate.

“Ultimately, there are major benefits for companies working together in person,” Riva added. “Collaboration, connectivity and teamwork are all benefits of being in the office together, and we believe that long-term, people do want to work in that environment because they are more productive.”

Basin Street owns and manages three class-A office buildings totaling 718,000-square-feet in Downtown Reno: 50 W. Liberty St., 200 S. Virginia St., and 300 E. Second St.

Its portfolio in Northern Nevada and Northern California, however, consists of 85 office buildings comprising more than 5.2 million square feet of office space. Leasing across the company’s Reno properties remains healthy at 92 percent occupancy, Riva said, though there has been a slowdown in tour activity — and understandably so.

“Companies have a lot to focus on to navigate through these times, and a lot got put on hold as we all tried to figure out how this is all going to play out,” Riva told NNBW. “Now, as we start seeing progress in terms of reopening and re-emergence of business, tour activity is increasing. We have a number of deals we expect to convert to new tenants, and that’s a positive sign.”

Office vacancy lags behind other sectors

Despite optimism, office vacancy continues to lag behind other sectors of commercial real estate.

An overhead look on July 6 of construction process on office and retail space at the Village at Rancharrah near the Kietzke/Del Monte intersection in Reno.
Courtesy Photo: Tolles Development Company

According to research by Colliers International, overall office vacancy in Reno-Sparks was at 10 percent at the start of the year, with continued weak performance expected throughout the sector in 2020.

Although there are a few proposed office developments that could shake up the market, construction of new office properties is currently limited to 36,000 square feet under construction at the Village at Rancharrah, Colliers International reported.

Rents, meanwhile, continue an upward trend and ultimately could lead to new office development if they continue to increase.

In the first quarter of 2020, average asking price was $1.87 per square foot, up $.18 from a year earlier, Colliers reported. Downtown office rents remain highest at just north of $2, followed by Meadowood at $1.91.

“The Reno commercial real estate market overall remains quite healthy,” Riva said. “There is a nice balance of supply and demand in the market that would indicate the market should remain relatively stable going forward. There’s not a lot of new construction that would lead to a meaningful increase in supply, and demand seems to be quite robust.

“From Basin Street Properties’ perspective, we are still very positive about the future of Downtown Reno.”