Flex space in firm demand

The market for flex space part office or showroom, part warehouse is bubbling in the Truckee Meadows, and developers say it's an indication of strength among smaller companies in the region.

Demand remains strong, particularly from companies looking to buy flex space, and more projects are on the drawing board.

Don Welsh, who tracks the flex market for Colliers International, says the vacancy rate in flex projects is about 8.6 percent.

Anything under 10 percent vacancy rate generally is considered a tight market.

And the market is tight even though some good-sized projects recently have come on the market.

Gaston & Wilkerson, for instance, brought 145,000 square feet of flex space to the market with the completion of its Double Diamond Commercial Center.

Two flex projects by Tanamera Commercial the Foothills Commerce Center west of Highway 395 near South Meadows Parkway and its Sandhill Business Campus on Longley Lane will deliver another 269,000 square feet of flex space,Welsh says.

And The Magnolia Companies is under construction with the 65,000- square-foot next phase of its Magnolia Commerce Center at Mill Street and McCarran Boulevard.

Don Wilkerson, president of Gaston & Wilkerson, says much of the demand at the Double Diamond Commercial Center has been driven by the desire of small companies to take advantage of low interest rates to purchase their own space.

Perhaps because companies are more interested in buying than continuing to rent space,Wilkerson said the leasing market is somewhat soft at the south-Reno project but he adds that leasing often is slow during the fourth quarter.

Tanamera's Foothill Commerce Center, meanwhile, drew so much interest that the company purchased an additional five acres to develop additional flex space.

"We've been extremely pleased with Foothill Commerce Center," says Brett Seabert, the company's chief operating and financial officer.

The six-building, 211,000-square-foot development can be divided into spaces as small as 2,400-square-foot.

The spaces have proven particularly popular with companies such as furniture retailers that want to combine a showroom visible from Highway 395 with warehouse space, Seabert said.

Next up for the company is the Sandhill Business Campus near the recently opened extension of Double R Boulevard.

Construction just started on the project, Seabert said.

That flex space will be more office-oriented than Foothill Commerce Center, he said.

Demand for Tanamera's flex space, he said, is coming from the continued migration of California companies into northern Nevada as well as homegrown start-ups.

Lizanne Stoever, president and chief executive officer of The Magnolia Companies, says another factor influencing the demand for flex space is the growth of outsourcing companies payroll processing or other backoffice functions that don't need high-profile space.

Companies looking for flex space, she says, typically want less than 12,000 square feet.

Companies that want more than that usually are better served by traditional industrial buildings.

The first 60,000 square feet at Magnolia Commerce Center filled up so quickly that the company moved ahead of schedule to bring the next 65,000 square feet on line.

And Stoever noted the mix of uses has proven financially attractive to her development.

It projected that office space which leases for higher rates than warehouses would account for about 60 percent of the center's finished space.

Instead, office space space accounted for about 72 percent of the mix.

Across the region,Welsh says, lease rates on office portion of flex projects are near $1.30 a square foot, and leases on the warehouse portions run about 65 cents a square foot.

Assuming that a flex space is half office and half warehouse, he says this results in a blended rate of about $1.15 a square foot.

Sale prices, he says, run about $82 a square foot.

While demand has been strong recently,Welsh cautions that any increase in interest rates could dampen the enthusiasm for new flex projects.