Northern Nevada industrial market shows no signs of slowing after solid 3rd quarter

RENO, Nev. — Northern Nevada’s red-hot industrial market showed no signs of slowing in the third quarter of the year, and new buildings that could ease pressure on Class A vacancy rates are leasing almost as soon as they come out of the ground.

In what’s being called the largest speculative lease in state history, Bolingbrook, Ill.-based apparel retailer S&S Activewear leased all 802,000-square-feet of Panattoni Development Company’s North Valley’s Commerce Center building at North Virginia Street near Lemmon Drive.

S&S provides bulk active and fashion wear for household brands such as Adidas, Champion, Van Heusen, Wrangler, Hanes and Columbia.

Mike Nevis, senior vice principal with the industrial team at Kidder Matthews, which represented Panattoni in lease negotiations with S&S, says the facility is expected to be delivered in early November. S&S, meanwhile, plans to bring the facility online in the first quarter of 2019.

“This was 802,000 square feet — it certainly is the largest spec building Reno has ever seen, and even Las Vegas has not built a spec building this large,” Nevis says.

Leasing a building that size to a single tenant was challenging, Nevis says. Tenants with facility requirements that large typically work with developers on ground-up, build-to-suit projects to ensure their buildings are constructed exactly to their needs. The Panattoni building had to be reconfigured slightly to meet S&S’s parking needs, Nevis notes.

S&S had picked a different site outside of northern Nevada for its West Coast expansion, but it abruptly switched gears and took the Panattoni building before it was even finished, Nevis says. It’s a growing trend in Northern Nevada.

Making way for big box expansions

Tom Miller, president of Miller Industrial Properties, says that most new industrial buildings in Northern Nevada in excess of 200,000 square feet are taken off the market before or simultaneously as they are added to regional inventory.

“The big box expansions continue to be swallowed up reasonably quickly,” Miller says. “Companies are actively touring them, and there are offerings before the properties are even close to being available.”

With a booming national economy, companies such as S&S Activewear want to ramp up their West Coast presence, and nNorthern Nevada represents the ideal location for distribution, warehousing and Internet fulfillment operations. Despite local increases in construction and labor costs, Nevada continues to trump neighboring California — S&S will shutter its California distribution center in 2019 and shift its Western operations headquarters to Reno, with California call center operations moving to Tempe, Arizona.

With ground-up build times at 14 or more months, companies with western region expansion plans are snapping up new Class A speculative space while it’s still under construction to expedite that timeframe. Still, Miller notes, companies with serious intentions about being in Northern Nevada are finding space.

“We are not having that many market inquiries where we can’t find an opening somewhere,” he says. “I don’t think we are turning too many prospects away in the big box category because they can’t find an adequate location. There seems to be a relative balance between supply and demand.”

Demand is a bit softer in middle-sized industrial properties ranging from 150,000 square feet to 50,000 square feet, Miller notes, with smaller industrial spaces 40,000-square feet and below leasing briskly.

“The fringes, the smaller end and the mega end, is where activity is right now,” Miller says, “and it has been for several quarters.”

The story in Carson City, Carson Valley

It’s been years, meanwhile, since any new large industrial property was erected in Carson City and the Carson Valley, but that soon could change.

DBB Holdings Principal Dan Brower plans to develop a 31-acre parcel of land on Heyborne Road in Minden that could add as much as 432,000 square feet of new inventory to the region.

DBB Holdings plans to split the industrial space under roof between three buildings divisible to a minimum of 50,000 square feet.

The company is currently securing a permit to begin grading the project, says Jack Brower, senior advisor for SVN Commercial Associates in Carson City. Buildings would have a minimum of 32-foot clear heights and likely would be marketed to distribution users, Brower adds.

DBB Holdings already has signed letter of intent for one of the buildings, Jack Brower notes.

Industrial space — especially new Class A space — is at a premium in the Carson City/Moundhouse/Carson Valley markets.

The last industrial development in that region was Starbuck’s expansion of its roasting facility in Minden. The Seattle-based coffee giant added 700,000 square feet to bring its northern Nevada operations to 1 million square feet under roof. Sail-maker North Sails also constructed a new facility nearby.

“There is just a lack of space in that market,” Jack Brower says. “Small spaces 5,000 to 10,000 square feet, there is nothing available. And if you need anything from 10,000 to 30,000 square feet, you can’t find it — it is almost nonexistent.”

DBB Holdings also owns a 10.7-acre parcel in the Moundhouse industrial area that could be quickly ready for vertical construction, Brower adds. It also could sell the land, do a build-to-suit, or line up a speculative project.

Northern Nevada rental rates in the third quarter jumped 9 percent year-over-year, Kidder Matthew’s Nevis says. Vacancy experienced a slight uptick from the second quarter, from 3.73 percent to 4.5 percent — however, developers also delivered 1.4 million square feet of new industrial space in the quarter, he adds.

“When you deliver that much inventory in one quarter, you typically see a rise in vacancy,” he says. “But overall vacancy was mitigated a lot with that 802,000-square-foot lease. (The region) did about 1.5 million square feet of new leasing for the quarter.

“We on track for a good year.”