Industrial projects set to rebound

Industrial development is likely to resume in a big way throughout northern Nevada this year, but developers are heading into uncharted waters as higher costs push rents up.

Development of office projects, meanwhile, is likely to be fairly quiet after a coupleof strong years.

The news on the industrial side is this: Developers are gearing up for several big speculative projects throughout the region after nearly three years in which speculative building came to a near halt.

Panattoni Development, for instance, expects to begin working March on a 405,000- square-foot speculative building at its Lear Industrial Park in Stead.

If that building leases quickly, the company is ready to roll with another 200,000-square-foot building nearby, says Doug Roberts, the Panattoni partner in Reno.

The company also is preparing to start work on a 148,000-square-foot project in the Red Rock area this spring, and has started work on Airport East Commerce Center, an 18- building flex warehouse project on Joule Street just east of Rock Boulevard in Reno.Airport East was more than half leased before construction began, Roberts says.

DP Partners, another major player in the Reno-area industrial market, plans to bring on about 600,000 square feet in three buildings in the Reno market during 2005.

Construction on two of the buildings is scheduled for spring; the third is set for next summer.

Aaron Paris, the company's chief operating officer, says he believes industrial vacancy rates could drop as low as 8 percent or even 5 percent if the economy continues to pick up steam.

"We are going to be fully switched from a tenants'market to a landlords' market," Paris says.

Those tenants probably will face rents in new buildings unlike anything they've seen in northern Nevada before.

Paul Perkins, senior vice president in the industrial properties group of Colliers International in Reno, says rents on new highcube warehouse space could run as high as 36 cents a square foot compared the 28 cents now common for newer space.

Rents on new space, Perkins says, are driven upward by sharply increasing prices for land a cost that's up more than 30 percent in the past year.Also contributing are higher construction costs as prices for steel, concrete and lumber also have risen sharply in recent months.

The challenge for Reno-area developers, Perkins says, is this: The industrial users who are shopping around for sites typically are looking at other Western cities as well, and Salt Lake City and Phoenix don't have the same expensive land.

Offsetting that disadvantage, he says, is the better location of Reno to serve West Coast markets.

And despite the challenges faced by developers, Colliers International predicts that the combination of speculative projects and buildto- suit work for new and expanding companies will result in the construction of about 1.5 million square feet of industrial and distribution space in the market this year.

Development of big, Class A office projects, however, is likely to remain sluggish this year.

Vacancy in those buildings currently stands at 13.2 percent, up from 10.5 percent at the start of the year, says Dominic Brunetti, an office specialist with Colliers International.

Even as vacancy rates in Class A buildings rose, rents on new space have risen above $2 a square foot in most instances.

The culprits, Brunetti says, are higher land costs and higher construction costs.

That's cooling the enthusiasm of developers.

Garden offices complexes ended the year with a vacancy rate of 10.7 percent, and more space is on the way.

The Ribeiro Companies, finishing up the final two buildings in their Sierra Quail project along South McCarran, have started work on Quail Northwest on Robb Drive and Quail Country Estates on Huffaker Lane in southwest Reno.

Tanamera, meanwhile, is working on 170,000 square feet of garden office space at the Reno Tahoe Tech Center along Highway 395 in South Meadows.

It also has two new garden office projects in the area of Longley and Double R in south Reno with a fourth in Spanish Springs.