Small in scale but still ‘strong, desirable’

Declining prices for office properties in Northern Nevada has led dozens of owner-users to purchase their own buildings in 2024.

Just over half of last year’s 65 office sales were from companies buying their own properties, Colliers reports. Investors, meanwhile, largely remained on the sidelines due to high interest rates and reduced access to capital.

Jason Hallahan, office properties associate with Colliers Reno office, told NNBW that sales volume in the office sector is typically skewed toward investment opportunities.

“Usually it’s flopped,” Hallahan said. “We have seen a lot more investment sales in past years. In 2023 it was even at 25 owner-user and 25 investment sales, but in the past 10 years investment sales always outweighed the owner-users.”

Reno’s office market remains largely untroubled by the extended vacancy rates brought about by the COVID-19 pandemic that decimated office occupancy in large West Coast office markets such as San Francisco (34.2 percent overall vacancy at the end of 2024, per Cushman & Wakefield), Oakland/East Bay (24.6 percent) and Seattle (32.3 percent). By way of comparison, San Francisco’s and Seattle’s office vacancy rates in 2019 were just south of 5 percent, Cushman & Wakefield reports.

Jason Hallahan

Reno’s vacancy rate was 9.1 percent at the end of last year, Colliers reports. While Northern Nevada has never been a primary office market – logistics and distribution are the backbone of the region’s commercial real estate market – the region still offers more than 10 million square feet of office space.

Building pricing and rents in certain submarkets continued to decline for Northern Nevada office properties over the past several years. The average price per square foot in 2022 was $259.15. In 2024, that number had dipped 15 percent to $219.38, making it more attractive for regional businesses to acquire their own facilities rather than continue leasing.

“Due to fixed loan rates being super high, investors are on the sidelines waiting and hoping for interest rates to go down before they start purchasing properties for investment purposes,” Hallahan said. “But with those higher interest rates, the price of buildings is going down in order to make properties easier to purchase. For owners-users who are going to occupy their spaces, it makes sense for them to become buyers when prices are lower.”

The hotspot for owner-user properties — which oftentimes are medical users or construction/technical trade services companies — is 2,500-square-feet to 7,500-square-feet, Hallahan noted. And Reno’s continued resiliency in the office market could eventually lead to new office properties in the region, something developers have largely shied away from outside of a few build-to-suits in select submarkets.

“When vacancy rates fall below 10 percent, it’s usually an indicator that we could use more inventory in the market,” Hallahan said. “We expect developers to start gearing up for new projects and new buildings.”

The downtown submarket hasn’t seen any new office construction in decades, but Boise-based developer Ahlquist announced in March that it would redevelop the old Harrah’s hotel-casino in downtown Reno into a mixed-use project featuring 133,691 square-feet of Class A office space.

Todd Collins

Todd Collins, director of office properties for Cushman & Wakefield’s Reno office, told NNBW that while office vacancy did go up as the pandemic hit Northern Nevada, it never reached the shocking levels seen in major markets. Lacking a mass exodus of office workers, rental rates have held steady as well, he added.

Rates have actually increased at higher-quality properties as tenants upgrade their office spaces or move to “right-sized” to accommodate office staff working from home. Larger office spaces, Collins said, have proven much harder to lease.

“The sweet spot is probably 3,500 to 7,000 square feet – that seems to be the real hot spot,” Collins said.

Cushman & Wakefield this week moved its offices from Washington Street to the third floor at Corporate Pointe at 5250 S. Virginia St. The move was necessary, Collins said, because the brokerage has increased its staff size and plans on making additional new hires.

The Meadowood submarket continues to be the most desirable location in town and tops regional submarkets with an overall asking rate of $4.10 for full-service leases on Class A office space. The overall asking rate market-wide is $2.25 for top-tier office space.

Rental rates are expected to continue their upward trajectory as Reno’s office market backfills existing spaces.

“We are a strong and desirable market,” Collins said. “We are still small in scale, relatively speaking, but we continue to grow. I’m hoping the data center surge that we have been hearing about brings about more tech employment. There aren’t a lot of employees at a data center, but hopefully as we grow the tech market here in Reno, it will be good for Northern Nevada’s office market.”