Reno office market on slow, steady climb
The Reno office market remains steady as the first quarter of 2017 closed.
According to a report by CBRE Inc., Reno recorded a positive net absorption rate for the fourth consecutive quarter at 12,312 square feet. The vacancy rate stood at 13.6 percent in the first quarter, down from 14 percent in the fourth quarter of 2016.
David Woods, vice president in the Reno office of CBRE, said the upward trend in the office market should continue at a moderate pace.
“Reno is not battling a negative perception anymore,” Woods said. “It is now well-known on a national level. Reno is now cool.”
Melissa Molyneaux, vice president in the Reno office of Colliers International, contends, though, that while the market remains positive, it also has flattened out a bit.
She cited some instances where office absorption cancelled itself out, such as when CAEK, Inc. leased office space, only to have another office space open up when Charles Schwab left its 13,000-square-foot space for Las Vegas.
Still, Molyneaux said while the market isn’t going gangbusters like the mid-2000s, commercial real estate brokerages are staying busy.
“As long as it’s a manageable level, that is good for us,” Molyneaux said.
Lease prices are a mixed bag.
Class A office space, has seen fluctuating lease-prices while the Class B and C submarkets are seeing competitive markets with owners jockeying for tenants.
One thing that Woods said is a bit worrisome is the lack of large-scale office space over 10,000 square feet right now. Downtown Reno, for example is in very short supply of Class A office space.
With such short supply, it’s expected that Class A lease rate will rebound in the near future. The Class A average lease rate decreased by $.06 to close at $1.82 per square footage while Class B decreased by $.05 at $1.53 per square footage.
Woods added there just isn’t that much Class A space available and an influx of new speculative office space is needed.
“A lot of companies from the Bay Area are looking over the hill to Reno,” Woods said. “A large number of these companies want the brand-new 2017 Class A office space.”
Construction of office properties has stalled as general contractors are focused on more lucrative sectors. Couple that with high prices of construction materials, there’s been very little new office space coming onto the market.
“Construction companies are very busy, but are increasingly turning their attention to retail or multifamily sectors,” Molyneaux said.
A few notable office property construction projects are McKenzie Properties’ Mountain View Corporate Center near the Kietzke Lane and Neil Road intersection in South Reno, and Reno Land Development’s mixed-use project at Rancharrah that includes office, retail and residential properties.
On the other hand, sales of office properties remain strong.
Molyneaux indicated investors have turned their attention to buying older complexes and renovating them to attract new tenants.
“On the sales side we have certainly seen prices coming back,”Molyneaux said. “Investors are fixing up these old buildings to attract those cool tenants,” she said. “It has been wildly successful.”
She cited 63 Keystone Avenue project in Reno. The once blighted building was purchased by Blackfire Real Estate Investors, which began renovating the entire property.
Overall, according to CBRE’s report, there is strong interest from out-of-state investors enamored with northern Nevada’s growth potential, even though leased investment opportunities are limited.
Although there is interest in downtown office space, Wood indicated the Meadowood Mall area is still the most sought-after submarket. He cited Meadowood’s proximity to retail opportunities continues to be an attraction for potential tenants. He added that while downtown has amenities the lack of parking options sometimes deters potential tenants.
While the office market is not as hot as industrial, retail or residential markets, results from the first quarter from decreasing vacancy and availability rates will continue into the middle of 2017.