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Relative stability reported in owner-occupied flex spaces

John Seelmeyer

A newly completed analysis suggests small companies in the service sector in the Reno-Sparks region may be surviving the economic storm.

At least, the study suggests, they’re not going out of business and leaving vacant space behind them.

Chris Fairchild, an industrial broker with Grubb & Ellis|NCG in Reno, surveyed individually owned industrial flex units ranging in size from 3,000 to 7,000 square feet during December.

Flex units, which provide a combination of office and warehouse space, are beloved of small service companies. In fact, Fairchild said, he found that 86 percent of the units in his survey were occupied by service-oriented businesses. Six percent were occupied by distributors and 8 percent by manufacturers.

And a vast majority of the space is owned by the companies themselves as low interest rates in the middle years of this decade encouraged business owners to buy rather than lease.

“These businesses are historically in for the long run and create a more stable environment with minimal turnover,” Fairchild said.

Excluding a couple of large flex projects in South Meadows that were completed fairly late in the real estate cycle and marketed largely to investors rather than users, vacancies in individually owned flex spaces run about 3 percent, Fairchild said.

“Owners often will exhaust all other expenses prior to jeopardizing their property,” Fairchild said.

On the other hand, he said continued weakness in the economy may force the hand of some owners of flex space who have been barely holding on.

They’re looking at options such as leasing all or part of their space, selling the unit to an investor and leasing it back or other options.

Leasing the space may prove to be tricky, however, as tenants are few, and they’re typically looking for bargain rents.

The market is proving challenging, Fairchild said, for investors who bought flex units during the real estate boom in hopes of generating rental income.

Often, he said, renters are more likely than owners to leave space behind when the economy weakens. That has boosted vacancy rates in complexes that are heavily investor owned.

Then, too, price tags on those projects assumed that investors would be able to keep rents high enough to cover the mortgage and other costs. But that hasn’t worked out as tenants look to reduce their overhead.

Larger developers of flex properties, Fairchild said, have shown a willingness to absorb losses to win tenants, and individual investors who own flex units may have to do the same.