Report: New developers change industrial dynamic

The arrival of new industrial developers in the Reno-Sparks market may contribute to overbuilding in the future, a Reno-based brokerage firm says.

In a quarterly research report, industrial brokers at NAI Alliance noted that 1.3 million square feet of speculative industrial space is under construction in the market, and the arrival of so much new space could push vacancy rates into double digits by the end of the year.

At the mid-point of this year, the vacancy rate stood at 7.7 percent up a full percentage point from just 90 days earlier.

And, the NAI Alliance report said the basic dynamics of the industrial development appear to be changing as additional developers flock to the region.

"In the past, the four or five developers that have been consistently active in the local industrial market all watched each other's planned construction and moderated themselves to avoid a glut," the company.

But among the new arrivals in the market, Tarragon LLC of Seattle is building a 411,000-square-foot speculative industrial building at Spanish Springs Business Park, and plans two more.

Union Property Capital, a San Francisco company that's another recent entrant into the market, is building 500,000 square feet of speculative industrial space at Tahoe Reno Industrial Center.

NAI Alliance said at least two other developers headquartered outside of northern Nevada appear ready to break ground on projects.

"This promises to change one of the most entrenched dynamics of the marketplace," the brokerage report said.

The 7.7 percent vacancy rate reported by the firm at the end of the second quarter compares with 4.8 percent a year earlier.

The company said two-thirds of the sales and leasing activity in industrial space occurred in the North Valleys and the Interstate 80 corridor east of Sparks.

Those two areas provide affordable land to developers no significant pieces of industrial land are available in the core areas of Reno and Sparks and that means the most modern distribution and industrial buildings are found in the outlying areas.

On the other hand, the older industrial areas of Sparks saw an exodus during the first half of the year. The vacancy rate in Sparks stood at 6.7 percent at mid-year.

NAI Alliance estimated some 700,000 square feet in Sparks was left vacant as companies such as Parts Unlimited and ACH Foam prepared to move to newer facilities elsewhere.

The brokerage said leasing activity began to pick up as the second quarter came to a close, raising the possibility that pieces of the new speculative space could be taken off the market this summer.