Office market predictions for 2015
Welcome to our fourth edition of the Reno Office Space Bold Predictions article. We have been accurate on several of our past bold predictions such as the Rancharrah land purchase in 2014, the CAP rate dropping to the low 6 percent range in 2014 and now it is time to look at 2015 and make 10 more bold predictions for the Reno office market (and maybe one or two non-office predictions).
Here’s how we see things shaping up.
We will continue to see several large office building sales in 2015. Last year saw several large office building sales including 10539 Professional Circle, 9790 Gateway Drive and 9480 Double Diamond Parkway, and this trend will continue. While I predict several large office building sales in 2015, the day of the $100-per-foot sale appears to be long gone. I predict similar office sales moving forward to be $150 per foot and up. This will be based on the projection of the rent increase which we will touch on later.
Medical will be a hot ticket. Medical office space leasing and sales will continue to be extremely active. The trend appears to be medical groups moving away from the hospitals and looking into purchasing or leasing their own private location. The issue is, however, that due to the additional parking and building requirements there aren’t many options for medical users, especially when looking for more than 10,000 square feet. If interest continues, I expect new medical development begins in 2015.
Midtown office space will struggle. Reno loves its shiny new toys and Midtown is no exception. There have been numerous great new restaurants, bars and retailers that have opened with great success in Midtown. As a patron, I enjoy the vibe and atmosphere of Midtown. However, as an office broker I see far too many flaws that prohibit it from ever being successful. The best thing that can happen to Midtown is to continue to see downtown office success and ride the wake.
Reno is officially on the map. This just in ladies and gentlemen: Reno has hit the radar of national tenants and site selectors. I have family, friends, and clients all along the West Coast and they have contacted me to ask what is going on in Reno. Tesla certainly helped, but that is only the tip of the iceberg. I am expecting big things in the very near future.
Positive absorption of over 100,000 square feet and overall vacancy dropping below 15 percent for the first time in a decade. By far the least bold prediction of the 10, however, it is the most important as commercial real estate is a great barometer of the overall economy. As the economy improves, companies will hire new employees. When companies hire enough employees, they will expand. As they expand they will absorb more office space.
Pricing will continue to increase. Class A properties are starting to reestablish their predominance over its competitors. If you are a tenant who leased office space during the last 3-5 years in a Class A office for Class B or C prices and has a lease expiring this year, you hopefully negotiated renewal options because rent is sure to increase in 2015. Last year I boldly predicted that Class A rents would average over $2 full service. In 2015, I predict that rents in Class A will top out at $2.50 Full Service. Bottom line, if you want high-end office space with visibility, signage, access to amenities and executive housing, be prepared to pay for it.
Office speculative construction will begin. Finally, we will be at the point that you can build office space and have it pencil financially! I cannot describe to a non-office broker how incredible this is as it has been seven years since we have even had new construction that was not for a specific client build to suit.
Multifamily construction will continue. There are three multifamily projects either under construction or newly finished and this trend will continue into 2015. Combining the new companies entering the market with the rapidly rising residential market demand for rental property, whether rental houses or apartments, will continue to rise. I anticipate several new projects to enter the market and the monthly rates to increase throughout the year. Multifamily will be a great investment in Northern Nevada for the foreseeable future.
Tires will be kicked and there will be a new campus atmosphere in 2015 or 2016. Last year, I incorrectly predicted a call center entering the market and building a facility in 2015. I am altering my prediction to a large office campus entering the market a la Microsoft Licensing or Intuit. There is far too much activity brewing in the Truckee Meadows to not attract a company to not only enter the market but make a significant splash.
Steakhouse. There is too much national influence and too much money entering our economy to not have a national steakhouse enter our market, such as Morton’s, Ruth’s Chris and Fleming’s. Don’t get me wrong, I love our local chefs, but if Reno is being looked at nationally from an industrial and office market play, I feel that we should also be taken very seriously for a top-end steakhouse as well.
I love Reno. Not a bold prediction but a statement of fact. The city is an incredible place to work and live and I am so blessed to be a part of this incredible community. As our community continues to grow, it is important that we continue to keep the business and social climate that is helping to recruit new businesses and keep current business here.
Kevin Annis, CCIM is a broker/principal at ArchCrest Commercial Partners specializing in office properties and investments. Contact him at 775-742-2539 or firstname.lastname@example.org.
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