Reno-Sparks real estate market gears up for 2017
2016 was an active year for the Reno-Sparks real estate market.
Leaders from the business community gathered at the Builders Association of Northern Nevada’s Forecast 2017 and Beyond event, held Jan. 17 at the Atlantis Casino Resort, to hear from some of the leading experts in commercial and residential real estate. These experts gave recaps of the 2016 market as well as their predictions heading into the new year.
The lack of inventory is one of the main challenges facing the residential market heading into 2017.
“Today we are in a seller’s market,” John Graham, president of the Reno/Sparks Association of Realtors, said at the meeting. “We don’t see a change in that in 2017.”
Median sales price increased about 9 percent in 2016. The area needs more new construction of single family homes to keep up with the demand and to alleviate the increase in prices.
“The shortage of inventory is really driving the price increases,” Graham said.
However, Graham does not think that the region is in another housing bubble.
Based on pending sales, new listings, median sales, etc., “none of those things are in alignment to indicate a bubble,” he said.
According to Graham, an individual earning around $55,000 can afford a house in the $230,000 range. However, homes in the $250,000 and less range are becoming harder to find. People are having to look to outlying areas such as Stead and Fernley to find single family houses in that range.
“The inventory is diminishing and moving east,” Graham said.
Heading into 2017, he anticipates that interest rates will go up, the median price will continue to increase slowly and inventory will continue to be a problem for the next two to four years.
Last year was a strong year for the Reno-Sparks industrial market and that momentum is expected to continue in 2017.
“2016 was a banner year for industrial real estate,” Chris Fairchild, vice president of the industrial group at Colliers International, said.
The market experienced record setting gross and net absorption in 2016. Fairchild said that they not only saw a lot of interest from tenants and buyers but also interest from investors. Colliers reported that more than $100 million was invested in the Reno-Sparks marketplace last year.
Last year was also a strong year for construction in the industrial market with 4.9 million square feet of product added. According to Fairchild, 3 million square feet of industrial product is slated to be built in 2017.
“There is very little vacancy in all of our 2016 development and 2017 is very moderate and paced construction,” he said.
He also said there was 4.6 million square feet of product purchased in 2016. Most of the sales were from outside the market.
“This speaks to us being on the map as a region for industrial real estate,” Fairchild said.
For 2017, Colliers International predicts that vacancy rates will go down and that rental rates will increase.
Multifamily property is another hot commodity in the Reno-Sparks market.
The average rent for an apartment is $1,054 per month and vacancy rates are down to 2.24 percent, according to the Johnson Perkins Griffith Third Quarter Apartment Survey.
“This is an 11.8 percent growth which is an amazing year,” Trevor Richardson, Dickson Commercial Group, said at the event.
There were nearly $190 million in sales for multifamily apartments in market rate apartment complexes with a minimum of 80 units in 2016. Richardson explained that most complexes sold were built in the 1970s and 1980s with the exception of the Bristol Bay apartment complex in Sparks, which was built in 2002 and sold for $35.5 million, or $134,000 per unit.
“A big story for 2016 has been the increasing rate of new apartment construction on a national level which has also been the story here in Reno,” Richardson said.
According to Richardson, there are more than 1,000 units under construction and more than 7,000 units in planning phases, with the majority of these located in south Reno and the I-80 corridor.
Entering 2017, Richardson said he expects to see the annual growth begin to level off and rents to increase to an average of $1,095 by the third quarter. Dickson Commercial Group also predicts that the vacancy rate will increase to 2.5 percent due to new multifamily units being built in the market.
“But overall the new demand will remain strong enough to absorb these new units hitting the market place,” Richardson said.
According to senior vice president for NAI Alliance Kelly Bland, the retail market was relativity flat in 2016 but he was optimistic heading into 2017.
According to Bland, there were two significant sales in the market in 2016. The largest sales were Firecreek Crossing, which sold in July for $48.3 million, and Airport Square, which sold in June for $15.25 million.
Last year, there were several tenants that moved out of the market including Sports Authority, VF Outlet and Office Max.
In 2017, there will be several anchor tenants finalizing leases to enter the Reno-Sparks market in 2017, including Sprouts, which will be located in South Meadows.
For 2017, Bland predicts that year-end vacancy will decrease, gross absorption will be higher than 2016 and net absorption will increase over the average of the last four years.
“Although Reno’s retail was flat last year, we think Reno’s retail is poised for a strong recovery (in 2017),” Bland said.
Unlike some of the other sectors of commercial real estate, the office market was steady but unexciting.
“The reality is that office is just kind of boring this year,” Kevin Annis, broker and principal at ArchCrest Commercial Partners, said.
The office vacancy rate continued to decrease, the net absorption was just barely positive and there was hardly any new construction in 2016.
While EDAWN and the State of Nevada and local government continue to bring more companies to northwestern Nevada, very few of those businesses are taking up office space. Of the 27 companies that EDAWN brought into Reno in 2016 only three were office users.
The main challenge in the Reno-Sparks office market is the lack of inventory.
Annis explained that Reno currently only has six Class-A properties available in the 15,000 to 20,000-square-foot range. Two of those properties are medical buildings and only one is a true Class-A.
To solve this “we’ve got to build,” Annis said.
However, office construction also comes with its own challenges. Annis said that office-based land either sold recently for a high dollar price or in the last peak.
“So our land for office space is expensive,” he said. “… Rent rates are going to have to go up in order to build (new offices).”
Reno-based design firm MBA Architecture and Design is assisting on the $47 million Caesars Entertainment project in downtown Reno.