Commercial vacancy study: Carson markets balanced

The market for commercial space in Carson City has found a good degree of balance following the COVID-19 pandemic, according to a recent study conducted by Mallory LaBranch, associate of LOGIC Commercial Real Estate and daughter of late Carson City Supervisor Brad Bonkowski.

LaBranch and partner Blaise LaBranch produced a similar report (specifically of industrial space) of Mound House last year.

“In the wake of the global pandemic, interest rate hikes, and resounding economic uncertainty, all three submarkets of Carson City’s commercial real estate scene show signs of balance,” Mallory LaBranch said in the introduction to the 2024 study released in April. “And after a few tumultuous years, ‘balance’ certainly has a nice ring to it.”

The study focused on vacancy rates (percentage of unoccupied space) for office, retail and industrial markets in the capital city.

The overall vacancy rate for office space in Carson came in at 5.99 percent. Excluding government-owned buildings, that rate jumped to 8.99 percent, the study showed. For medical offices, the overall vacancy rate was 16.21 percent, and leasing office space cost an average of $1.40 per square foot.

“The overall office vacancy rate of 5.99 percent is considerably better than the national office vacancy rate of 19.2 percent (as of Q3 2023 per Moody Analytics) and shows an improvement from 2021’s 8.4 percent vacancy,” the study says. “While 2021’s vacancy was astoundingly low compared with national trends at that time, we can credit the considerable drop in vacancy since then to the reopening of the economy in a post-pandemic world. Carson City was already fairly insulated against the national office exodus of the pandemic and has managed to further improve.”

The study credited economic growth and growing employment in Carson for reducing the office vacancy rate by a third since 2009, when the region was gripped by economic recession.

The double-digit vacancy rate for medical offices, on the other hand, had climbed from 6.1 percent in 2021 and 4.1 percent in 2019, according to the study.

“There are several large properties with 5-figure vacancies contributing to this significant vacancy,” reads the study. “High medical vacancy presents the opportunity for new providers to move to the area or open their own practices in town. Additionally, the simultaneous market tension in the overall office market – just 5 percent when medical office is excluded – juxtaposed with bloated vacancy in the medical office sector could pose an opportunity for owners and investors to reposition medical office as professional office space.”

Overall vacancy for retail space was 7.46 percent — 7.2 percent for standalone retail and 7.6 percent for multitenant shopping centers. Leasing retail cost an average of $1.16 per square foot, according to the study.

“The retail submarket’s overall vacancy rate of 7.46 percent is a drastic improvement from 14.9 percent in 2021 and continues the downward trend of the last 15 years,” the study says. “It also marks an important shift: the first time since the inception of these vacancy studies in 2009 that retail vacancy in Carson City is sitting below the 10 percent we would consider to be market equilibrium. This means, for the first time at lease since the Great Recession, the retail market is in a seller’s or landlord’s market.”

The national retail rate is 5.3 precent, the study noted. In Carson City, in the multitenant space, there was “a tale of two shopping centers.”

“Roughly 60 percent of Carson City’s retail centers are fully occupied, while others are more than 30 percent vacant,” the study says. “In this market, retail center space is either languishing or leasing like hot cakes.”

Some retail centers in the city lack a “strong anchor” and need improvement, according to the study.

For industrial space in Carson City, the study found an overall 7.70 vacancy rate, with median available square footage of approximately 16,556 and an average lease cost of $1.02 per square foot.

“The industrial vacancy rate in Carson City is currently 7.7 percent, which reflects a balanced market very close to an approximate 7 percent equilibrium vacancy,” the study says. “Compared with the astoundingly low 3.8 percent vacancy in 2021, there are now better options available for industrial users looking to come to Northern Nevada or those who might have purchased a leased space in the more competitive mid-pandemic market.”

The 3.8 vacancy rate in 2021 was “neither sustainable nor healthy,” according to the study.

“While it might sound like a bad thing for vacancy to have doubled since then, it’s truly not,” the study says. “The pressure on the Carson City industrial market at that time was stressful for all involved and didn’t contribute in a positive way to economic growth in Northern Nevada.”

The national industrial vacancy rate is a little above 5 percent, according to the study.

The study also touched on the multifamily market. Based on data from Johnson Perkins Griffin, the multifamily vacancy rate in the city averaged 3.07 precent, below the 5 percent level “that would be considered a balanced market,” according to the study.

“This market has been under stress for some time now, showing significant improvement from its 1.5 percent vacancy in 2019,” the study says. “Owners of all sizes of multifamily properties are still reaping the benefits of a lack of housing inventory in Carson City, but renters aren’t struggling as much to find a place to live as they have in recent years.

“A housing shortage is no new phenomenon and we would expect to see continued development of high-density and single-family housing options alike in the coming years.”

In a news release, Mallory LaBranch provided a personal note about the study. Her father Brad Bonkowski passed away in 2022.

“You may have seen vacancy studies in past years published by Andie Wilson and Brad Bonkowski,” LaBranch said. “It is a privilege in every sense to grab the baton from these two industry giants and continue to put this report together for public consumption every two years (... or three).

“As Andie and Brad’s daughter, I was always a little involved in their commercial real estate business, but the 2019 and 2021 Carson City Vacancy Studies gave me an opportunity to take a more involved role working hand-in-hand with them and learning the ropes, so to speak. It’s an honor to now pick up the Carson City Vacancy Study where they left off.”