New office buildings in pipeline

As office construction picks up steam in northern Nevada next year, some observers voice mild concern about whether the area may be starting to get ahead of itself.

And there's no question that companies looking to move into new office buildings will pay rents like $2 or more a square foot that were unheard-of just a couple of years ago.

This year's construction brought about 298,000 square feet of office space into the market.

That's in line with the area's average over the past five years, says Don Welsh of Colliers International.

He says, too, the market absorbed about 250,000 square feet during the year leaving little of the newly constructed office space vacant.

In the next year, however, Colliers projects that absorption will be closer to 300,000 square feet as the economy heats up and more office workers are hired.

But lots of new office space is coming onto the market.

Par Tolles, area director for Trammell Crow, notes that these big projects are among those in the pipeline: * Another 45,000 square feet at Sierra Corporate Center (near the south-Reno Target store) to be built on spec by Trammell Crow.

* About 45,000 square feet under construction at Northern Nevada Corporate Center near Damonte Ranch and Double R in South Meadows.

* Some 32,000 square feet that will be available for lease in a south-Reno building in which the Hale Lane law firm will be the primary tenant.

* About 37,600-square-feet in the first phase of an office building developed by the Magnolia Companies at Sandhill and Double R Boulevard in South Meadows.

More inventory will be added, he says, as the companies that are building their own offices to take advantage of low interest rates increasingly build a little extra space to rent out.

"It's going to be interesting to see if it all can be absorbed next year," Tolles says.

As the year came to a close, Colliers International estimated the vacancy rate in Reno's 50 largest office buildings at 12.2 percent.

The vacancy rate in garden office buildings was 12.4 percent, and the vacancy rate in flex buildings which combine office with warehouse or manufacturing space stood at a low 8.6 percent.

One veteran of the office business, Ken Stark, a partner in NAI Hale Day Gallagher Co., says he sees continued solid demand in the office market, both in leasing and sales.

Much of the activity, he says, comes as companies expand their existing Reno operations, and relocations into the market provide an added boost.

Tight land supplies continue to translate into higher construction costs for new office buildings, and developers recoup those costs through rents that routinely will top $2 a square foot for a top-notch, full-service building.

Land costs are only going higher.

The land under the new First Independent Center on South Kietzke Lane sold for $12 a square foot.

Now, just a few blocks away, land in Mountain View Corporate Center sells for $17 a square foot.

At that price, Colliers'Welsh says, most developers are sent to the sidelines.

Next year will be noteworthy, too, for the continued exodus of law firms out of downtown Reno.

Hale Lane, for instance, will move from 100 W.

Liberty to 32,000 square feet of a new building in Mountain View Corporate Center.

Avansino, Jelarky and Knobel, meanwhile, will move to a new building at Caughlin Ranch.

That trend, which began in the late 1990s, has seen government agencies moving into much of the space vacated by law firms,Welsh says.