New office construction on tap for Reno, Northern Nevada – eventually
Read more: Northern Nevada Real Estate Journal, April 2018
This is among a series of stories included in the April 2018 edition of the Northern Nevada Real Estate Journal (NNREJ), which the NNBW publishes on a quarterly basis to provide various real estate market updates across the region. To read more from the April 2018 series of NNREJ stories, click the links below:
RENO, Nev. — Reno’s tight supply of Class A offices may see signs of a relief by year’s end.
JMA Ventures, a San Francisco real-estate investment firm with offices in Truckee, hopes to break ground in 2018 on a combined hotel and office project across Terminal Way from Reno-Tahoe International Airport.
“We’re developing an airport hotel on a parcel next to the Hyatt (Hyatt Place Reno-Tahoe Airport), and on an adjacent parcel we are planning a 65,000-square-foot Class A office building,” said Jamie Robertson, a JMA acquisition and development executive.
Estimating the start date at 6 to 9 months from now, Robertson said the planned four-story office building will feature open-floor-plan offices with floor-to-ceiling windows and full support for modern business technology.
JMA took a long look at Reno before approaching the Reno-Tahoe Airport Authority about developing the land, which the Authority owns.
“In the last two years, we’ve been really excited about what’s going on in Reno,” Robertson said.
Aside from the area’s oft-mentioned favorable business climate and big high-tech newcomers, the cost of living, even given the tight and increasingly pricey housing market, is a further attraction for the next wave of Northern California move-outs, he said.
“We want to help prepare for that wave,” he said.
Reno’s economy could use such developer interest. Mike Kazmierski, executive director of the Economic Development Authority of Western Nevada, said the low amount of free Class A space is beginning to hamper EDAWN’s mission of attracting well-paying employers.
Although prices are reasonable for the available space, “we’re finding push-back on expectations,” Kazmierski said.
Based on EDAWN’s current activity, the market’s supply should keep up with the demand for the next 18 months, he said.
“If we don’t expand on high-end Class A properties, we will have problems,” he said. “We could see a loss of high-tech clients and prospects.”
Until then, most office construction will consist of upgrades to existing Class A offices and to better Class B buildings.
Matt Grimes, vice president of CBRE Reno Office Services, and Melissa Molyneaux, senior vice president and executive managing director Colliers International’s Reno office, agree with Kazmierski.
Grimes added that the problem with playing catch-up in today’s market lies in finding the money.
“Builders need to pencil out new construction with building prices that are at an all-time high and land costs that are at all-time highs,” Grimes said.
In particular, there is a shortage of land available to provide onsite parking right next to any new buildings, he said.
Call centers and similar companies might not be able or willing to pay the rates that sites with large parking lots would carry.
“Budget-conscious users with high parking numbers would go elsewhere,” Grimes said.
A bigger issue coming up: tenants who signed five- or seven-year leases earlier this decade.
“They signed their leases back during the recession, when rates were lower,” Grimes said.
With those leases ending, the affected tenants will have to deal with today’s higher lease rates, he said.
Otherwise, things are keeping steady, Grimes and Molyneaux said.
“I don’t think there’s a major shortage of office space in this area where we need to ramp up construction across all market areas,” Grimes said.
In its report for 2018’s first-quarter, Colliers International shows a slight increase in available office space, Molyneaux said.
“It look like, for the first quarter, we ended with a little negative absorption, of 17,000 square feet,” Molyneaux said.
That figure includes 43,000 square feet of space vacated in the Meadowood sub-market, the biggest chunk of which was 30,000 square feet of sublease space in the Mountain View Corporate Center on South Kietzke Lane.
“That was probably our biggest giveback for the quarter,” Molyneaux said.
The overall vacancy increase is lower due to a healthy amount of market churn throughout the area.
“There definitely is a lot of action,” Molyneaux said. “For every tenant we see move into a space, we see another roughly similar-size space come vacant.”
Colliers also shows rental rates holding at $1.57 per square foot, with the vacancy rate at all market levels hitting 11.4 percent.
However, those figures are not the final word.
The Q1 report from CBRE Group shows a little different picture: a $1.57-per-square-foot lease rate, but a positive net absorption of 55,479 square feet and a total market vacancy rate of 10.8 percent.
This type of difference, though, is common between commercial realty firms, whose research departments use different, though internally consistent, standards for measuring markets.
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