— By Baker Krukow, Senior Advisor, Industrial, Dickson Commercial Group —
The Reno-Sparks industrial market is expected to remain active in 2023. It has a hefty pipeline of proposed industrial projects, steady increases in rental rates and a direct vacancy rate below 2 percent. The lack of available product has remained a challenge for tenants looking to occupy space, while landlords have been able to benefit from competing offers. The result of these tight market conditions will continue to push industrial development throughout the year.
There was roughly 5.4 million square feet of new industrial product delivered in 2022, with 76 percent of those projects being speculative developments. A vast majority of those spec projects were pre-leased prior to completion. Looking at 2023 new construction, developers are dealing with severe winter weather delays. As a result, several projects have had to push back their completion timelines.
Amongst some of the anticipated industrial projects under construction are Dermody Properties’ LogistiCenter at I-80 West Phase II, which will contain two state-of-the-art distribution buildings totaling 429,000 square feet. In the Sparks submarket, Panattoni Development has broken ground on the Pyramid Pointe Commerce Center, a 195,000-square-foot, Class A flex/bulk building, which will demise to 9,000 square feet. In the I-80 East corridor, Locus Development currently has three buildings under construction totaling roughly 2.9 million square feet, with an expected 2024 delivery.
Through fourth-quarter 2022, the overall direct industrial vacancy rate has sat at 1.67 percent, which is the highest quarterly vacancy for the year. This record-low direct vacancy rate has allowed rent growth to remain strong. Rates for big box space north of 100,000 square feet grew by an average of 37 percent in 2022. This was a 43 percent average increase for mid-bay space, and a 39 percent increase for flex space. The rental disparity between submarkets has started to even out. Specific submarkets like the I-80 East and North Valleys — where rent concessions of $0.05 to $0.10 square foot per month were common — are now achieving rents within a few pennies of competing space in more central submarkets.
We expect to see a continuation of rent growth and low direct vacancy rates. Meanwhile, sales volume will likely remain low due to the increased cost of capital and sellers continuing to hold out at lower cap rates, or deciding not to list their properties.
The consistent demand from companies looking to relocate or expand in Northern Nevada, combined with the industrial market’s strong fundamentals, will allow Reno/Sparks to continue to expand its reputation as a leading distribution hub out West.