Federal government leases insufficient to buoy market

Active leasing of office space by federal agencies wasn't enough to keep the vacancy rate in Reno-area office buildings from rising during the first quarter, Colliers International reported last week.

The vacancy rate stood at 21.6 percent at the end of the first quarter, up a tick from the 21 percent at the end of 2009, said Tim Ruffin and Melissa Molyneaux of Colliers.

In the downturn area, the vacancy rate stood at 25.2 percent, up from 23 percent 90 days earlier. That's a record-high figure.

The south Reno area, meanwhile, saw a decline in its vacancy rate to 24.4 percent from 25.1 percent at the end of the fourth quarter. (The Colliers' vacancy numbers include vacant space that's available for sublease.)

The federal government provided significant support to the market as its leasing took nearly 50,000 square feet of vacant space off the market.

The U.S. Immigrations and Customs Enforcement agency leased 35,000 square feet at Sierra Corporate Center, the FBI leased 20,000 square feet from Panattoni Development in South Meadows, U.S. Citizenship and and Immigration Services will lease an 18,000 square foot building under construction in South Meadows, and the General Services Administration leased an additional 4,000 square feet in downtown's Museum Tower.

Despite those leases, the amount of vacant office space in the region grew by 40,000 square feet during the first quarter.

"It appears those businesses hanging on at year-end threw in the towel during the first quarter," Ruffin and Molyneaux said in their report.

Rents have stabilized, the Colliers brokers said. In South Meadows, recent leases have been inked at $1.50 to $1.60 a square foot, and tenants continue to leave lower-quality buildings to take advantage of attractive leases in better offices.

"We believe this is a trend driven by Baby Boomers who want to work in nice offices for the remainder of their careers," Ruffin and Molyneaux said.

But the trend, they noted, continues to put pressure on the owners of lower-quality buildings who see higher vacancy rates.

Despite the high vacancy rate, some build-to-suit office projects are providing work for contractors.

Those projects include the 18,000-square-foot building for the federal government in South Meadows, a 50,000-square-foot building for WMS Gaming in South Meadows and a 10,000-square-foot medical building by Templeton Development at the south end of Kietzke Lane, the Colliers brokers said.