Demand for industrial space picks up steam

As demand for industrial real estate in the Reno area begins to perk up, speculative construction may be about to follow.

Colliers International said last week that about 6.3 million square feet of industrial space was on the market at the end of the third quarter, down a bit from the 6.4 million square feet on the market at the end of the second quarter.

The vacancy rate in industrial property stood at 11.1 percent at the end of the third quarter compared with 11.6 percent 90 days earlier.

While that's not a big drop, it may signal to developers that it's time to ramp up construction, Colliers said.

The signal to developers is all the stronger, the management company said, because of the number of deals in the works and the growing perception that the national economy has turned the corner.

The condition of the national economy is particularly important in Reno's market for industrial real estate because many tenants are large national corporations who use northern Nevada as their West Coast base of operations.

An example: One of the biggest recent moves in the region's industrial market came when Sally Beauty Supply, a unit of Alberto Culver, expanded its distribution center in Stead by about 116,500 square feet.

The company now operates in more than 250,000 square feet.

Another national company that expanded its Reno-area operations in recent months was UPS Logistics, which leased 75,448 square feet in the Sage Point Business Park developed by DP Partners.

Colliers said other deals in the pipeline include a possible major expansion by a parts distributor, a plastics manufacturer looking for a building to purchase, a distributor of gift products looking for a distribution center in the area and a third-party logistics company scouting the area for about a half million square feet of space.

If the demand spurs new industrial construction, it will revive a business that's been moribund.

Since the start of this year, Colliers said, only 628,565 square feet of industrial space has been completed in the region, and more than half of that has been built to suit.

By comparison, the region saw completion of an average of 2.3 million square feet of industrial space in the first three quarters of 1999, 2000, and 2001, when the market last was strong.

Since then, demand has been in its longest drought in recent history, but Colliers said the dry spell appears to be nearing an end.

"Economic development officials and industrial brokers are scrambling to keep up with activity," the company said in its quarterly report.

The amount of industrial space leased this year about 2.8 million square feet is almost 20 percent higher than the amount recorded in the first three quarters of last year, Colliers said.

At the same time, the company said the industrial market has been dominated by small transactions so far this year.

Only two have exceeded 100,000 square feet.

Net absorption of industrial space new leases minus departing tenants totaled about 506,000 square feet during the quarter, Colliers said.

As demand rises, rents are beginning to firm.

"The window of opportunity for tenants to secure lower rents is beginning to close," Colliers officials wrote.