By Evan Meyer, Senior Office Specialist, Kidder Mathews
The business climate continues to thrive in Reno as the regional economy quickly rebounded from the pandemic-fueled recession of 2020. Reno performed far better than most markets on the West Coast with a low unemployment rate (4.2 percent in August) and expanding job growth (+7.2 percent year over year). The region’s rapid growth persists as new businesses continue to move into the area, a trend that accelerated over the past few years. Most relocations are coming from California, attracted by the strong economic environment and business-friendly policies in Northern Nevada. As one of the fastest-growing regions in the U.S., expansion is occurring across multiple industries, including technology, manufacturing, distribution, financial and healthcare.
The diverse and dynamic nature of the regional economy has driven the overall performance of the office
Evan Meyer, Senior Office Specialist, Kidder Mathews
market. This has produced continuous years of declining vacancy and a decade of rising rents, even through the peak levels of the pandemic. At the end of the third quarter, the vacancy rate was 7.7 percent, a 130-basis point drop compared to the previous quarter. Vacancy rates continue to decline across all submarkets due to strong demand and tenant expansion.
Net absorption also gained momentum during 2021, with 245,618 square feet year to date — 212,295 square feet of which occurred in the third quarter of 2021. As a result, asking lease rates increased nearly 10 percent year over year and are expected to see additional growth in the near term. Concessions are holding steady with many landlords offering turnkey tenant improvements for strong credit tenants.
The suburban submarkets have been very active over the past three to four months due to high levels of tenant demand. However, with low vacancy rates and a lack of leasable inventory beginning to surface, the supply-and-demand imbalance will be something to monitor going forward. This trend is especially prevalent within Class A inventory, particularly in the Meadowood and South Reno submarkets. These areas only have a few spaces over 5,000 square feet and a small handful between 2,000 and 5,000 square feet. To illustrate the current and impending challenges, much of the future space availabilities are already in negotiations as expanding tenants are eager to find quality space.
Although strong market fundamentals and pent-up demand typically drive new construction, new office development remains relatively stagnant. Only 523,000 square feet of new office product has been delivered since 2010. There is currently 277,000 square feet under construction and an additional 600,000 square feet of proposed projects. However, due to the high cost of construction, there are very few large and significant developments in the pipeline.
With all this demand, investment market activity is through the roof, resulting in increased sales volume and premium pricing on a per-square-foot basis. While most of the demand is coming from out-of-state investors, it’s becoming increasingly difficult to find available inventory for purchase with more buyers than sellers right now. Looking ahead, most of the trends are expected to hold strong as Reno has become one of the hottest markets on the West Coast.