Supply and demand
Demand for office space for the homebuilding industry in the Reno-Sparks area is cooling after a couple of years in which homebuilders, mortgage companies and title firms were among the fastest growing office tenants.
And some space previously leased by homebuilders and related companies is quietly beginning to come back onto the market. Office brokers say they’re scouting tenants for space that’s available for sublease from housing-related companies that have scaled back their plans.
Brian Armon, an office broker at Grubb & Ellis/NCG, says homebuilders themselves account for some of the slowdown as they decide they won’t need space for expansion or have office space available as they reduce their staffing to deal with a slowing market.
Some space also is coming back on the market from title companies and mortgage companies, says Tim Ruffin, an office broker with Colliers International.
Nobody tracks the amount of space that’s back on the market from homebuilding-related companies, and one broker notes it doesn’t amount to much in an office market that totals about 8.5 million square feet in the two cities.
“I don’t think it’s an issue,” says Matt Riecken of Trammell Crow Co. in Reno. “There just isn’t enough of it to be an issue.”
Ruffin agrees that the amount of sublease space isn’t significant by itself.
“But it is significant,” Ruffin says, “in that this segment was a large part of the net aborption in the last few years.”
In the past two years in South Meadows alone, he says, the homebuilding industry accounted for some 100,000 square feet of office leases.
Among the South Meadows leases in 2005, says the Reno office of CB Richard Ellis, were 43,000 square feet by MLSG Home Loans, 28,000 square feet by Lennar Homes, 20,000 square feet by the civil engineering firm of Wood Rogers.
But in mid-summer, Ruffin says, a national homebuilder who was ready to lease space in the Reno area walked away from the deal.
The companies that are reducing their requirements for office space aren’t eager to talk about it publicly, and it’s open to question how much effect the space available for sublease might have on the overall office market.
Scott Shanks, an office broker with Alliance Commercial Real Estate, says the amount probably wouldn’t increase the region’s office vacancy rate by even 1 percent. (At mid-year, the vacancy rates were reported at 11 to 13 percent, depending on who was counting.)
Armon says companies that need to sublease space have maintained discipline about pricing so far and don’t appear to be panicked into accepting low lease rates just to generate cash flow on otherwise vacant space.
For some tenants, meanwhile, the space available for sublease may provide opportunities to get well-improved offices on shorter leases than they might otherwise find, says Dominic Brunetti of Alliance Commercial.
Nevada’s October unemployment rate of 12% is up slightly from the 12.5% mark it posted in September thanks to 3,600 additional jobs.