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Industrial second quarter report shows Reno-area market growth

Sally Roberts
sroberts@nnbw.biz
The Petco distribution center on Red Rock Road was the largest industrial building added to the area during the second quarter of 2015. The more than 770,000-square-foot building is nearing completion and expected to begin operations in September.
Sally Roberts/NNBW |

Second-quarter industrial real estate reports for the Reno area reflect a post-recession return to a healthy market.

The area gained 1.33 million more square feet of industrial space in the second quarter of 2015, an increase of 1.8 percent, according to a report by NAI Alliance. That brings the market total to 76 million square feet.

New construction boosted the vacancy rate for industrial buildings, but that’s not a bad thing, according to market analysts.

“Construction is a nice bright sign,” said Michael Hoeck, senior vice president/principal industrial properties with NAI. “It’s not just one contractor (taking on new construction). It shows they’re bullish for the market. We haven’t seen that since 2008.”

It shouldn’t take long to fill the vacancies, he said.

“We’re getting good interest (in new products),” Hoeck said. “The properties are really well positioned based on the interest we’re seeing.”

NAI reports 46 industrial building transactions completed in the second quarter.

Petco’s new build-to-suit distribution center on Red Rock Road dominated the action. The pet supply company’s 770,650-square-foot building, expected to go live in September, represented 40 percent of the quarter’s gross absorption and 72 percent of the net absorption.

The second-largest lease transaction was the Ozburn Hessey Logistics lease of 106,720 square feet in Sparks, NAI said.

Major sales transactions included the acquisition by DBRE of 3200 USA Parkway for $41.7 million; Prologis-Exchange of 566,000 square feet at 10875 Sage Point Ct. for $8.5 million; and Dean Lauren Grae Holdings, LLC’s purchase of 5,000 square feet at 1690 Industrial Way for $2.5 million.

With a stabilizing market, contractors are taking on riskier speculative construction projects.

Two spec buildings came onto the market during the second quarter, according to CBRE’s second quarter report. Prologis completed a 566,660-square-foot building in the Eagle Valley Commerce Center and Conco expanded 2777 USA Parkway with a 300,000-square-foot building.

The addition of large spec buildings into the market skewed the vacancy rate.

The actual vacancy rate varies from broker to broker, as each uses different criteria to crunch the numbers, but the trend is an increase in the second-quarter rate compared to the first quarter.

For instance, NAI reports a vacancy rate of 8.8 percent in the second quarter, which is up slightly from 8.7 in the first quarter. Miller Industrial Properties’ second quarter vacancy rate is 11.44 percent, up from 9.52 in the first quarter.

CBRE reported a flat vacancy rate at 6.7 percent.

“However, don’t read any problems to this jump in vacancy and certainly don’t expect any market rate adjustments because of it,” the Miller report stated. “To the contrary, this is simply a show of a healthy real estate market entering into an expansion phase with developers responding to market needs by bringing on new product and rolling it into the inventory supply chain.”

Miller predicts vacancy rates will bounce between 11.5 and 7.5 percent through the rest of 2015 depending on when new inventory becomes available and when occupants absorb it.

“New build-to-suit projects will continue and the Reno-Sparks market will stay balanced with a slightly landlord-favored trend into 2016,” says the Miller report.