Northern Nevada’s industrial market: 'Ton of demand and no inventory'

Northern Nevada’s industrial market historically has always had a few feathers in its cap it could tout over competing markets such as Phoenix or the Inland Empire – mainly, availability of affordable land, inexpensive power, a large labor pool, lack of a state income tax, and lower industrial leasing rates than those larger markets.

Many of those feathers have been plucked, though.

Developable land in the Truckee Meadows for large industrial projects is all but gone, rents are spiking, and vacancy in the first quarter hit an incredible low of .9 percent, with warehouse and distribution space declining to .7 percent, a quarterly industrial report by Colliers International showed.

“We have no buildings available,” said Chris Fairchild, senior vice president of industrial at Colliers. “We get clients looking to come into the market, and our first question is what size are you looking for? The second is what is your time frame, because we really have to push them out toward the end of 2023 to get enough dots on the map for a typical competitive (site) search.

“In terms of available space that someone could occupy before the end of the year, it’s slim pickings,” he added. “But we present as many options as we can put on the board for any and all of our clients. It’s not any easier across the country – Reno-Sparks is doing amazingly well, but the tide is rising for industrial across the country.”

Reno for decades enjoyed a competitive edge on primary and tertiary industrial markets, but its white-hot logistics, distribution and ecommerce industries have put it on par with many of its competitors.

“We used to be the low-cost provider of industrial real estate in the West Coast, and we are not that anymore,” Fairchild said. “But we are still very much desired – we have no state tax, there’s the ease of doing business, and it’s a right-to-work state. These are the pieces that still make it attractive for companies to move here.”

And there’s one feather that can never be removed – Northern Nevada’s strategic geographic location that allows for one-day trucking to 11 western-region states.

“The truth is that we still have a ton of demand,” Fairchild said. “It’s been this way for the last two years, and you just try to make sure that (prospective clients) understand that it’s very competitive.”

Although an astonishing 3.6 million square feet of new industrial space was completed and delivered in the first quarter of 2022, it was 100 percent preleased and did nothing to ease the intense pressure on regional vacancy rates.

The dearth of available industrial space has led to steep increases in lease rates – the $.78 per square foot average asking price is a 15 percent quarter-over-quarter jump and a 45 percent spike from year-earlier asking rates, Colliers noted. Those numbers include all industrial product types, though, Fairchild noted, and lease rates have changed even more for Class A industrial product.

“Most landlords in town have been doing a pretty good job of trending (upward) within reason, but the pricing is pushed up – and it should be because there is a general lack of product,” Fairchild said.

In other regional industrial news, the developers of Victory Logistics District in Fernley have fully leased their first speculative big box warehouse and are moving forward with plans to develop an additional 1 million square feet of spec industrial buildings.

Redwood Materials of Carson City leased the facility for warehousing and logistics of its battery recycling operations, which are located on 100 acres near Tesla’s gigafactory.

Lease-up of the initial 815,000-square-foot facility will spur the next round of development at Victory Logistics District, said Ross Pfautz, senior vice president of Northern Nevada for Mark IV Capital.

“We have processed plans and permits for buildings B and C, which are 169,500 and 217,000 square feet. Those are two 36-foot clear (height) buildings, and we are going to proceed with both of those.

“Our plan is to get started with those in May,” Pfautz added. “We had some competing offers on building A (the aforementioned spec building), and one of those tenants remains interested. We also have got plans submitted to the city and hope to start with building D (635,000 square feet) at the same time. There may be a slight delay depending on approval of plans and permits, but our attempt is to commence construction on all three.”

The larger spec building of 635,000 square feet will be built to the new 40-foot clear height, Pfautz noted. The taller facility allows tenants to increase their racking and storage space. Mark IV Capital also is entertaining offers on land parcels ranging in size from 50 to 200 acres from large national and international tenants, Pfautz added. Those tenants likely would want build-to-suit projects specifically designed to suit their needs, or they would build their own facilities.

“Leasing activity and interest is very strong,” he said. “We are working on a master plan for the 2,400 acres that sits between the (Interstate) 80 freeway and (Highway) 50, and that 2,400 acres we anticipate could generate approximately 25 million square feet of industrial buildings. We expect to deliver between 5 and 6 million square feet of industrial buildings over the next five years.”

Victory Logistics District comprises 4,300 acres, with 1,600 acres on the north side of Interstate 80 that Mark IV is not actively developing at this time, Pfautz said.

Pfautz said supply chain issues that have plagued the construction and many other industries surfaced during buildout of the 815,000-square-foot initial building. At times, he said, the general contractor couldn’t procure enough concrete to complete scheduled concrete pours, but overall, the project was still completed on time.

“In each instance, we made it up the next week and stayed on schedule,” Pfautz said. “We are expecting those issues to subside somewhat, but they aren’t resolved and if they don’t diminish it could be one of the more challenging aspects of developing.”