Reno Commercial Real Estate Comeback

During our recent downturn , the recession also affected the commercial real estate in Reno.  Industrial, office, and retail were not immune to what is called today the worst recession in Nevada’s history. The good news is that with Northern Nevada seeing increased economic activity, including the arrival of some high-profile companies, commercial real estate in the region is seeing a rising tide effect, according to industry watchers.

Some of the companies that once existed are no longer around anymore, like Circuit City and Good Guys. Vacancy for retail in Reno-Sparks peaked at 17.3 percent in the first quarter of 2013, according to commercial real estate service firm CBRE Inc. Since then, the vacancy rate has gone down to 12 percent in the first quarter of this year. A vacancy rate of 7 percent to 8 percent is typically considered healthy for retail. Reno’s Central/Airport market, which includes the surrounding areas of Reno-Tahoe International Airport, continues to post the highest vacancy rates in the area at 24.2 percent.

Since last year we have already exceeded the retail market with a strong first quarter in 2016 with a net absorption or available space that has been filled, totaling 192,188 square feet, according to CBRE’s latest quarterly retail report. Retail also posted one of the biggest job gains for the state in March, helping lower the state’s jobless rate to 5.8 percent for the month, according to the Department of Training, Employment and Rehabilitation.  Due to an overabundance of supply the construction of new commercial property is still stagnant, however there is a demand for improvement to existing centers such  as the  19,500 square-foot expansion at the Outlets at Sparks, also known as the Legends at Sparks Marina.

It is the Industrial segment that has really boomed in Northern Nevada.  What with Telsa Giga-factory and Switch’s Super NAP-the world’s largest data center once finished, as well as the news that Rackspace is looking at our area, has given our area a much needed boost on the technology side as well as some corporate cred. Dermody Properties, for example, has broken new ground on its LogistiCenter I-80 West speculative project at the Boomtown area just behind Cabela’s. The 800,000-square-foot project will feature four buildings and focus on tenants ranging from 30,000 to 200,000 square feet, said Eric Bennett, first vice president at CBRE. “This will be the first speculative project built in west Reno to take advantage of the mature labor market in northwest Reno and the close proximity to California,” Bennett said. Distribution accounted for 70 percent of all transactions in the fourth quarter of 2015, according to Colliers International. “At the end of the day, it’s packers and pickers,” said Greg Shutt, a vice president with Colliers International. “It’s logistics.” Bennett also pointed to sizable expansions such as ITS Logistics’ 625,500-square-foot facility and pet item supplier Chewy.com’s 566,600-square-foot facility, with several more announcements expected during the second quarter.

Office space has been relatively flat in 2016. Rents have been rising for the last two years consistently and it will probably take another two and a half years  for a healthy market to emerge. The three dominant markets for office in the area are downtown, Meadowood and South Meadows, each with their own niche tenants from related industries, said Tim Ruffin. ( Executive vice president at Colliers International)

Looking ahead, the trends look positive for the area, commercial real estate watchers agreed. Reno-Tahoe International Airport added several new flights and routes while also posting its first passenger growth in a decade in addition to record cargo hauls. Nevada also was the No. 2 most popular destination for movers in the West according to United Van Lines’ 2015 National Movers Study.

For Northern Nevada, a big part of it involves the national attention gained from big economic development wins such as the Gigafactory, Ruffin said.

“The whole perception of investing in Reno has changed,” Ruffin said. “The expectations from Tesla haven’t materialized yet but investors are coming in because of the perception.”