Industrial rents likely to climb as market for space tightens

Rents on industrial space, which have been essentially flat since 2000, are likely to head upward this year as vacancy rates tighten, says an analysis by Colliers International in Reno.

The company estimates that the vacancy rate in industrial space at the start of the year was 8.74 percent, down significantly from the 10.12 percent vacancy rate just three months earlier.

Even more noteworthy, the company said, is this: With developers on the sidelines because of sharply rising construction costs, only two spaces of more than 200,000 square feet are available.And one of those isn't for lease, only for sale.

"So prospective tenants for that size range may have to wait until late summer for more options," said the report from Colliers' specialists in industrial space.

The disappearance of concessions by landlords in recent months probably is a prelude to rising rents on both new and existing industrial space.

Companies leased and purchased about 1.7 million square feet of industrial space in the region during the fourth quarter, a figure that was 51 percent higher than the third quarter.

For the year, absorption of industrial space totaled nearly 6 million square feet, the secondhighest year on record.

The number of transactions during 2004 involving 5,000 square feet or more increased 20 percent from a year earlier, Colliers said, and the average transaction during the year was nearly 35,000 square feet.

That's a 46 percent increase over the 2003 figure.

Among the major transactions reported by Colliers during the quarter were expansion of facilities occupied by Hopkins Distribution, Darby Distribution and Metron, a new distribution center for Aramark and a new manufacturing facility by Carlisle Roofing.All the major transactions were in properties owned by Renobased DP Partners.

Sparks continued to account for a lion's share of the industrial activity, Colliers said, but south Reno also posted strong activity.

The highest industrial vacancy rates in the region at the start of the year 13.3 percent were in the central and west Reno market as well as the Interstate 80 east market.

The lowest vacancy rate, 6.6 percent,was in the airportarea industrial properties.

While developers of industrial projects have been spooked by construction cost increases of 20 percent or more, Colliers projects construction of at least 1.7 million square feet in the Reno-Sparks area this year.

That number could grow, the company said, if tenants are willing to pay higher lease rates.

At current construction costs, developers need to see rents in the range of 35 cents a square foot and that's in a market where 28 cents is

common for big-box space.