By all accounts, 2009 won't be a banner
year for office development and leasing.
With two years of standing inventory to
lease, construction of new properties is on
hold throughout the region, says an analysis
by Grubb and Ellis|NCG.
Vacancies in the Reno-Sparks market
stand at nearly 20 percent and are greater
than 30 percent in South Meadows historic
numbers.
"It is a concern for everybody," says Don
Welsh, vice president of Grubb and Ellis."It is
going to be a slow year.We have quite a bit of
backlog with the amount of vacancies, and
there is not a lot of construction going on.
Developers and the banks have pulled back."
Tim Ruffin, senior vice president of the
office team for Colliers International, agrees
that construction of new space will be almost
non-existent this year.
"Banks won't lend money for speculative
projects," he says."The fact that we don't have
a lot of new construction is good because we
won't get any more vacancy it's probably
the only bright spot right now."
Bruce Robertson, senior advisor with
Sperry Van Ness/Gold Dust Commercial
Associates in Carson City, says there are a few
owner-occupied medical office buildings
going up in the coming year in the Capital
City. One project on GS Richards Boulevard
will have 4,000 square feet for lease, but outside
of that new development is at a standstill.
"Dayton has nothing," he adds."There are
plans for more retail and office, but everything
is on hold as far as I can tell right now."
Negative absorption held steady throughout
the region in 2008, and as businesses
either downsized or left the area they flooded
the market with vacant office space. Nowhere
was this more evident than in South
Meadows.
Welsh says in the coming year average
lease rates for class-A office space could fall to
$1.75 a square foot as cash-strapped landlords
cut deals to find tenants. In some cases,
lease rates have tumbled to 2000 prices.
"Definitely we have got a lot of companies
trying to renegotiate,"Welsh says."We are
advising landlords to keep their tenants."
Ruffin says that due to its incredible
amount of vacant class-A space, South
Meadows may become a hot item this year as
tenants dictate favorable lease terms to landlords.
"People will be able to drive the best bargains
(in South Meadows),"Ruffin says.
Garrett Hallenbeck, partner with
Hallmark Investments and Management LLC,
says most companies have been hunkering
down and waiting to make any up or downgrades
to their space due to the see-sawing
stock market and additional costs associated
with a relocation.
"Even people who could save a ton of
money on their rent are still hesitant,"
Hallenbeck says "They still have to take on the
expense of advertising and printing new
paper."
Hallenbeck anticipates an uptick in office
leases at least for class-B and -C properties
by the third quarter. The market will bottom
out this quarter, he says.
"B- and C-class properties in a down market
usually fare better," he says."We usually
have a lot of people jumping out of a class
they can barely afford, but in the market today
we are having a hard time finding anyone
making that transition."
Hallmark Investment, which lists a lot of
properties around the Reno-Tahoe International
Airport, still sees more activity in that
area,Hallenbeck says.And smaller users to
3,000 square feet also are generating more
activity than larger office users.
Ruffin doesn't expect lease rates to
rebound for at least the first three quarters.
Sperry Van Ness' Robertson says the key to a
turnaround in the soft office market only will
come from renewed consumer and business
confidence in the economy.
"That is what is required to get things
turned around," he says."Will it happen soon?
I think we are probably at least another quarter
away before we start to see a change of
attitude.
Despite the soft market, Ruffin says the
long-term outlook for the region is bullish.
"It's the same reason we heated up 10
years ago we are very attractive to firms on
the West Cost that want a presence here.
Housing is still a bargain, and there is no state
income tax. I think we will see firms start to
put offices here again."
