Industrial developers in northern Nevada are likely to look past sharply higher costs and step up construction activity this year, says a Grubb & Ellis analysis.
In the analysis released last week, Grubb & Ellis said lower vacancy rates and higher demand should push lease rates up by 5 to 7 percent in industrial properties.
That, the company said, should be enough to encourage developers to begin construction of speculative buildings.
Developers have been cautious in recent months because dramatically higher land prices in the Truckee Meadows have combined with sharp increases in steel, concrete and labor costs to discourage new construction.
Land prices within the Truckee Meadows rose sharply to $9.50 a square foot during 2004 as the supply of industrially zoned property continued to shrink.
But Grubb & Ellis noted that the North Valleys as well as areas east of the metropolitan area along Interstate 80 continue to offer an ample supply of industrial land in the range of $1.50 to $2.50 a square foot.
In 2004, the company said, developers built about 750,000 square feet of speculative projects, and little of that was big-box industrial.
About 580,000 square feet of built-tosuit space was added to the market during the year.
"Most of the square footage added was flex space, built for sale, with very little to be held and leased," the Grubb & Ellis analysts said."The sale prices of these properties, which are primarily condo units, have been impressive with numbers as high as $125 per square foot paid for shell only."
At the start of 2005, Grubb & Ellis estimated that the vacancy rate stood at 9.3 percent in the 58.2 million square feet of industrial property in the market.
The Grubb & Ellis analysts said asking rents for industrial space in the area average $3.48 to $4.02 per square foot a year.
About 1.5 million square feet of construction is planned this year, the company said.
Last year, Grubb & Ellis estimated that gross absorption totaled 5 million square feet of industrial space in the market, either by new companies moving into the region or through the expansion of existing companies.
Net absorption a figure which balances new leases with new vacancies totaled 2.4 million square feet.
The net absorption figure marked an increase of nearly 150 percent over 2003 figures, the Grubb & Ellis analysis said.
