Northern Nevada Real Estate A special publication brought to you by the
Vol. 1
COMMERCIAL | INDUSTRIAL | RETAIL | LAND | OFFICE
Monday, April 14, 2014 | www.nnbw.com
Note from the Publisher...
Commercial real estate takes a positive turn Northern Nevada has suffered through Rick lean years Carpenter some for those in the rcarpenter commercial real estate @nnbw.biz industry. Brokers and developers have been hit the hardest. But finally, the commercial real estate ship is slowly turning in the sea of business opportunities in the Truckee Meadows area. The Northern Nevada Business Weekly recognizes the need for the business community to become more aware of the unique business that often rides the waves of drought and floods of growth. As that ship turns, we were searching for a way to bring awareness to the challenges and changes happening in the commercial real estate world. To do so, we are launching this premier edition of the Northern Nevada Real Estate Journal. While numerous publications focus on residential real estate, this section will explore the commercial side of the industry on a quarterly basis. We use the term “commercial” real estate to include retail, office, industrial, land and all other commercial properties. Our goal will be to provide the latest information about different aspects of the industry from what to look for in a broker to where to find funding, title insurance and advantages of different locations in the area. We realize that we are not going to be everything to everyone as we launch this new product so we want you to provide feedback on how we’re doing and what you would like to see more of as we develop content for each edition. What we won’t do is hold breaking news for this quarterly publication. Breaking news will be in the regular edition of the newspaper and even more timely news will be released in our daily update. We will print extra copies of this section and make them available through advertisers who support the publication. As you’ll read in this publication, the area needs more industrial space to accommodate the growing recognition of the strategically located at a national crossroads for delivering products in the West. As Apple Computer and other major companies discover the advantages of doing business in northern Nevada, that need will continue to expand as they become evangelists for the area as many of us already preach to those thinking of moving here. The area has so much to offer from open spaces to spectacular mountain ranges, the beauty of Lake Tahoe and untapped natural resources across the state from Yerington and Virginia City to Winnemucca and Elko. People might have first discovered the area for gold and silver, but they are now also mining the area for our strategic location in the West. We have lots of real estate. Let’s take advantage of that. ● NOTE: If you have ideas or suggestions to improve this publication, please send us feedback for the editorial content to John Seelmeyer at info@ nnbw.biz. If you’d like to learn about advertising opportunities, contact Eli Zeiter at ezeiter@nnbw. biz. Or call me at 775-850-2285.
Industrial rents on the rise By John Seelmeyer jseelmeyer@nnbw.biz
At the depths of the recession, industrial specialist Bryan Gardner of Reno Property Management was negotiating leases in goodquality industrial buildings around town for as little as 24 cents a square foot. Today, it’s not unusual for good-quality space to be leasing for 32 or 33 cents a square foot — with whispers of a few even-higher offers in the market. But trees don’t grow to the sky, and observers are watching closely to see how the tugs of demand-and-supply will work themselves out in the market for industrial space in northern Nevada. There’s a simple reason that rents are going up, says Tom Miller of Miller Industrial Properties in Sparks: The amount of vacant industrial space fell dramatically during 2013 — starting the year at about 13 percent, ending it at under 9 percent. Developers and landlords generally think of a 10 percent vacancy as a balanced market, and anything less means that property owners have the leverage to raise rents. And they did. “The ugly rents? Those days are long past,” says Miller. And the rent increases came fairly quickly. Just last summer, brokers marveled at a lease for a big industrial space that broke through the 30-cent barrier. Also gone, Miller says, are concessions — a month of free rent for every 12 months in a lease, for instance — that owners of Class A buildings were forced to offer during the downturn. But rising rents bring two questions: Will developers undertake speculative industrial projects with the expectation that they can land tenants willing to pay enough to support the new construction? And if new supplies of industrial space arrive, will it be enough to soak up the demand and put a lid on further rent increases? Developers and the lenders who back them still remember the pain of speculative overbuilding in 2007 and 2008 and haven’t been eager to build speculative products until rents rise enough to give them some comfort. That day is arriving, finds an analysis by the industrial team at CBRE. “Tightening supply, rental rate growth and continued demand will bring the next wave of speculative development in northern Nevada,” the CBRE group wrote in a January report. For the developer of a 500,000-squarefoot building, a 1-cent increase in the monthly, square-foot rate will add $60,000 to the landlord’s revenues. At least in theory, a growing supply of industrial space should soak up some of the demand and put a ceiling on rate increases. But speculative projects are likely to target specific sub-sets of the market, and new construction that meets the needs of one type of potential tenant won’t necessarily do anything to meet the demand from other tenants.
Quality industrial space is leasing for 32 or 33 cents a square foot. Rob Sabo, rsabo@nnbw.biz
The mix of companies that are looking for distribution space already plays a factor in increasing the demand for top-quality new space. E-commerce companies, for instance, have been among the key drivers of the distribution sector in recent years, and they’re mostly looking at newer, top-quality buildings. “The Class B buildings don’t work for them,” says Gardner. One key factor, he says, is that e-commerce distribution companies generally require more workers than traditional warehouses in the region. That means they need more parking than they can find at older buildings. Rents have been edging up a bit in those older and smaller buildings as well, although the increases haven’t been as dramatic. Brad Elgin, a vice president of Stark & Associates Commercial Real Estate, says demand has been particularly strong — and supply has been limited — for industrial buildings that include yard space. That’s driven, he says, by the return to life of construction-related companies that need storage for big pieces of equipment. Some space in older buildings also has been occupied by existing firms that are expanding their operations — adding 3,000 square feet here, 10,000 square foot there. But generally, he says, rents haven’t bounced back as strongly in that older, closer-to-town space as they have in new construction. Dampening demand — and the increases of rent — in those older properties are challenges that range from outdated construction to locations in flood plains. “They’re functionally challenged,” says Gardner. While folks looking for new space are likely to be paying particularly close attention to the direction of industrial rents, tenants who grabbed good deals when the market was soft face their day of reckoning when their leases come up for renewal. “Those leases are going to roll over, and people are going to have sticker shock,” says Gardner. ●