Northern Nevada Industrial Sector Remains Solid Despite Economic Slowdowns

by Jeff Shaw

By Nick Knecht, Senior Advisor, Industrial, Dickson Commercial Group

The vibrancy and growth of the Reno-Sparks industrial market has solidified the region’s position as a premier distribution hub of the Western U.S. — even as we head into what is expected to be a nationwide economic slowdown in the near term.

The third quarter continued the trend of positive net absorption of 469,970 square feet. This occurred even with four new construction deliveries totaling 1.7 million square feet, 98 percent of which was spoken for upon completion. This momentum is expected to continue to some degree, as our team is actively negotiating RFPs on each of our speculative big box listings, with space requirement inquiries coming in at a steady pace.

Nick Knecht, Senior Advisor, Industrial, Dickson Commercial Group

Alongside this positive activity, our market has been affected by the economic turmoil that has started to take shape over the past two quarters, with similar trends discussed nationwide. A changing debt market has produced several price adjustments mid-transaction for buyers to stay within their underwriting thresholds. The number of developers aggressively acquiring land at a feverish pace has decreased as they face a higher cost of capital and tamp down rent growth assumptions to more reasonable levels.

There remains a full list of clients that want to transact in this fundamentally strong market, highlighted by sub-1 percent vacancy and steady rent growth. Owners, occupiers and investors want to make transactions happen. It’s a matter of navigating the widening gap of pricing expectations, an evolving dynamic to work through. Both investment and owner-user sale volume slowed quite dramatically over the past several quarters, trending under $100 million per quarter. This is compared to our 2020 to 2021 average of $190 million per quarter. Interest rate hikes have certainly played a part, but just as significant has been an extreme lack of inventory, especially of institutional-grade investment property.

There is a sense of urgency from some developers to bring in tenants and stabilize their project as quickly and efficiently as possible. This is always the goal, and getting ahead of the curve of any potential economic slowdown is top of mind.

As a result of our downward pressure on vacancy, the construction pipeline in the market remains robust. Square footage under construction jumped 35 percent quarter to quarter to more than 7 million square feet with another 13 million square feet of proposed projects. While some developers are more bullish than others, we continue to field calls from acquisitions teams looking for sites to build on.
   The overarching fundamental shifts elevating the importance of efficient logistics networks and manufacturing capabilities will outlast an economic slowdown. The attractiveness of Northern Nevada as a low-cost place of business with superior geographic location and transportation networks — as well as the growing support of both long-time local developers and newer faces to build new space — has created an environment that will support our industrial sector over the long-term.

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