Downtown Reno attracting more new tenants

The resurgent market for office in downtown Reno, initially driven by law firms that wanted to be close to the courts, appears to be widening its appeal.

Among the sectors giving downtown a close look: Engineering firms that historically have looked for office space in the Meadowood and South Meadows neighborhoods, says Matt Riecken, a senior vice president of Trammell Crow Co. His company is leasing the Bank of America Plaza at 50 W. Liberty.

"The engineering employee population wants the downtown lifestyle," he says.

Whatever the source of tenants, the downtown office market is strengthening quickly.

In the second quarter, Alliance Commercial estimates the vacancy rate in downtown buildings fell to 13.8 percent from 16.4 percent just 90 days earlier. Brokers expect another sharp drop in vacancy this quarter.

Price plays a big role in the downtown recovery.

As land became pricey in suburban locations and as construction costs rose substantially existing downtown space looked more attractive.

"Downtown is significantly cheaper," says Brian Armon, an office specialist with Grubb & Ellis NCG in Reno. As a very rough rule of thumb, he says tenants can figure on paying about $1.85 a square foot for good office space in the downtown area compared with rents north of $2 sometimes substantially north of $2 in south Reno.

That can be a particularly strong sales point if local executives need the approval of an out-of-town headquarters before they lease, says Tim Ruffin of Colliers International.

And the difference between downtown and suburban rents is highly unusual.

"It's unique in any U.S. city. The central business district is usually the most expensive," says Scott Stranzl, vice president for leasing of Basin Street Properties. The company based at Petaluma, Calif., in recent months purchased the Bank of America Plaza as well as the Wells Fargo Building at 200 S. Virginia St.

Among those giving downtown a serious look are tenants who often are rare in central business districts.

Dominic Brunetti and Scott Shanks of Alliance Commercial, for instance, are working with a software developer that wants its creative workforce to be downtown.

"There's a buzz down there," Brunetti says. "They can walk to the amenities."

A key question, Shanks says, is the effect that development of high-end condominiums downtown will have on nearby office buildings. Often, he says, executives select office space because it's convenient to their homes.

In the short term, that factor slows leasing activity downtown, says Riecken, because executives who live in Montreaux, ArrowCreek or other south-Reno enclaves don't want to drive to work downtown.

And parking, ample around suburban office buildings, remains an issue for downtown landlords.

"It's the biggest hang up," says Armon.

On the other hand, parking has created some opportunity for the landlord of one downtown building.

The 15-story building at 300 E. Second St. dubbed "Waterfront Plaza" by its new owner, TRT LLC includes nine stories of parking for the public and Harrah's employees.

Alliance Commercial, which is leasing the property, spotlights the abundant parking as one of the amenities for tenants of the building's 135,000 square feet of office space.

Even downtown office vacancies drop, the decline isn't enough to get developers to work on new projects.

A new project, Ruffin says, would face the same high construction and land costs as suburban construction and the developer of new downtown space also would need to pay for parking. Land costs, meanwhile, dictate the downtown developers build up.

"I don't think you're going to see new product downtown," Ruffin says.