Land prices squeeze office project developers

Rising land prices in the Truckee Meadows will dampen the enthusiasm for new office buildings among developers.

Already, says Tim Ruffin of Colliers International, land prices for the two major office projects under construction in the area may squeeze developers.

Land for the Mountain View project and the First Independent Bank Center both near the corner of Kietzke and Del Monte lanes each sold for about $12.50 a square foot, Ruffin said.

Add another $5 or so for improvements, and the improved price is the range of $17.50 a foot.

But, Ruffin said, rents in the market don't support that.

"Our rents have not been increasing as quickly as our land values," said Ruffin.

At current rents, he said, developers need land priced at less than $10 a square foot to make office projects fly.

Land prices, he said, have doubled and sometimes tripled since the late 1990s.

At the same time, however, a study by Colliers International finds that lease rates in many areas of the city are under pressure and landlords are seeking concessions lower rent or higher allowances for improvements.

About the only exception to the weak rental picture, Ruffin said, is the corridor along McCarran Boulevard from Kietzke Lane to Plumas Street.

There, some properties are renting for as much as $2.45 a square foot.

Space in Magnolia Village at McCarran and Lakeside has leased for as much $2.65 a square foot.

So what's driving land prices? "Greed springs eternal," said Ruffin.

Demand for office property rose recently as interest rates dipped to levels unseen in the last four decades.

That encourages companies that currently are leasing space to construct their own offices.

Those purchasers of land can work with higher-priced property because they're not driven to turn a profit on their projects.

For speculative projects, Ruffin said South Meadows and Damonte Ranch properties may prove most attractive for developers of office projects.