Leasing of industrial space in northern
Nevada is expected to be flat much of this year
and new speculative development is nonexistent.
But some observers say the market could
turn quickly.
J. Michael Hoeck, senior vice president of
the industrial properties group for NAI
Alliance, says the lone bright spot in the market
might be the fact that speculative construction
has all but ended, giving the owners of unoccupied
buildings a chance at housing tenants.
"Fortunately we don't have anything coming
online,"he says."Tenants have a lot of choices
and probably can drive some pretty good
deals as well.
"There could be a couple of deals that drive
a build-to-suit, but we won't see any speculative
development there is no funding for it, even
to acquire land,"Hoeck adds."It is at a standstill.
It would even take a special client to get a
build-to-suit funded in this market; you would
need pretty solid credit."
Gordon Zack, first vice president of the
industrial properties group for CB Richard Ellis,
doesn't expect to see any new industrial or
warehouse construction until sometime in
2010. Zack and Hoeck agree the first two quarters
of 2009 should see little leasing activity, but
things should change for the better by mid
summer.
Reno's reputation as a distribution hub still
should be attractive to companies looking to
relocate operations closer to their customers,
Zack says.
"I don't
think we will
have a banner
year, but that
we will kind of
limp along and
start picking up
in third and
fourth quarters,"
Zack says.
"A lot of people
still have plans
to move into
West Coast distribution
centers
from the Midwest or East Coast. They are
supporting the fifth largest economy in the
world California and they still have to
service their customers. They have to be on the
West Coast to service those customers."
Adds Hoeck: "We probably will see the
worst of this in the second quarter. The unemployment
numbers that come out after the first
of the year will be a big indicator of where we
are going. If we see high unemployment and
fallout from (weak) retail sales,we should probably
see a decline (in leasing) until the second
quarter."
Mike McCabe, senior vice president of the
industrial properties group for Colliers
International, says the region's vacancy rate
exceeds 12 percent of its 70 million square feet
under roof.As a result, there will be some
aggressive deal-making this year.
"It is a time for landlords to do anything
they can to keep their tenants happy and satisfied
in their buildings, and for tenants it is a
great opportunity to upsize or downsize or
upgrade their facilities with improvements you
might not otherwise be able to convince your
landlord to do for you,"McCabe says.
Tahoe Reno Industrial Center has the
region's highest vacancy rate at more than 23
percent. The massive industrial park east of
Sparks has more than 12 million square feet
under roof,with 2.82 million square feet sitting
vacant.
Hoeck says that 300,000 square feet was
expected to be filled in the fourth quarter of
2008, but "all of it comes at the expense of
Sparks. It is all relocations from Sparks to I-80
east."
One bright spot, Zack says, is that the region
still is enjoying at least some activity.
"We still have people looking at this market,"
he says."Some markets probably aren't seeing
a lot of that.We have clients looking at this
region right now.Reno has become more
attractive because housing is down now and we
finally have good employment numbers
people can't say it's hard to find an employee
base."
Adds McCabe: "All is not sour by any
means. There are going to be transactions and
deals made, and we will continue to see very
slight absorption. 2009 will be a year of trying
to lease up our vacancy.We just have to be careful
as a state not to resort to tax policies that
would be a death-knell for attracting new
industry to the state."
Hoeck says a number of clients have
expressed interest in the area, but so far it's just
been a lot of tire-kicking.
"There are some inquiries going around,
but that is what they are, inquiries,"he says.
"How serious they are has yet to be told."
Dave Schuster, senior vice president of the
industrial properties group at Grubb and
Ellsis|NCG, says many companies will take a
harder look at expansions and relocations to
northern Nevada in the first quarter.
"Those companies will have an idea of what
their business plan looks like,"he says."We will
see people come out here and take less space
than what they need but try to get reserves for
future expansion.
"Our market can turn on a dime,"he adds.
"There are still large companies looking to
come to our marketplace.We are optimistic that
a large user will come in 2009 and get the ball
rolling for 2010."
