Dermody plans spec industrial project

Dermody Properties is re-starting speculative industrial development in the Reno-Sparks market with a 624,000-square-foot industrial building off Highway 395 in north Reno.

Reno-based Dermody Properties recently purchased a 91-acre parcel at Lemmon Drive and North Virginia Street from Sterns Bank in Scottsdale, which had foreclosed on the property originally planned as a residential development. Dermody Properties expects its general contracting partner, United Construction, to break ground in October on the first phase of the LogistiCenter 395 industrial park that will total 1.23 million square feet.

Brendan Egan, regional director of development for Dermody Properties, says low vacancy rates in the Class A industrial market, firming lease rates and continued interest from firms seeking e-commerce and distribution space in northern Nevada were key factors behind the Reno-based company’s decision to begin a spec industrial project.

Eric Bennett, vice president of the industrial team at CBRE, says the industrial market is at its strongest point since the frothy days of 2005-2006. According to the latest industrial market report compiled by CBRE, vacancy in the industrial sector fell from 11.5 percent at the end of the second quarter to 9.1 percent following positive net absorption of 1.7 million square feet.

Egan says vacancy in Class A space is even lower, down in the 8 percent range.

“Year-to-date lease-up has been almost 3 million square feet, which is terrific,” Egan says.

Citing the latest CBRE report, Egan notes that lease rates in the last nine months increased between 10 and 15 percent as well, another signal that the industrial market is firming. CBRE says lease rates in the North Valleys in the second quarter averaged 36 cents a square foot. The brokerage’s industrial team — Bennett, Gordon Zach and Dan Burhmann — will handle leasing for the new building, which is expected to be finished by June 2014.

Egan says the new spec building will have 36-foot clear heights, which is crucial for e-commerce companies that utilize large material-handling equipment and need acres of racking space.

“It will be the first 36-foot clear height spec building built in northern Nevada and possibly the entire state,” Egan says. “So many of the e-commerce guys are using three-tiered mezzanine storage, and they want that clear height. This building really is designed to accommodate the needs of these companies while still being very usable for a typical distribution company.”

Dermody Properties’ venture may also signal other developers that it’s time to jump back into speculative construction, which stalled in 2009 as millions of square feet came online just as the region entered the severe economic downturn.

CBRE’s Bennett says the new tilt-up project is well-needed and long-awaited, as available Class A industrial space dwindled to just two buildings in the entire region. The new venture on the south side of U.S. 395 is strategically located to take advantage of labor and amenities in the North Valleys, as well as easy access to the Highway 395 and Interstate 80 transportation corridors.

The venture most likely isn’t a one-off, but other industrial developers will enter the market cautiously, Bennett says.

“As we come out of a very slow industrial time for many years, people will take baby steps, but if we continue to have positive industrial numbers like this quarter, we many see someone else on heels of Dermody go vertical,” Bennett says. “With the amount of activity we are having, industrial space is getting tight quite quickly.”

Another industrial developer, SJS Commercial Realty of Deerfield, Ill., also has a large industrial project under way, but much of that space is rumored to be pre-leased.

Dermody Properties’ current portfolio of industrial space in the area is about 700,00 square feet, but the development firm has erected millions of square feet of industrial space throughout the region and country. It sold its portfolio of northern Nevada properties to Prologis in 2007.

United Construction has been the company’s prime general contractor for more than two decades. Dermody teamed with United to build out the Urban Outfitters e-commerce facility in Stead, a 462,000-square-foot facility that came online 2012.

“Dermody has long been Nevada’s leading industrial developer, taking the lead on spec development for 20 years,” Egan says. “It just makes sense that we are the guys going back and starting it up again. We have always been very confident about the strength of the Reno-Sparks industrial market. We were the last to build in 2008, and we are the first to build speculative industrial again.”