— By Nick Knecht, Vice President, DCG Industrial —
The industrial real estate market in Northern Nevada demonstrated stability over the first three quarters of 2023.
Sales performance year to date through the third quarter was steady, with industrial sales volume reaching $116 million. This represents a 42 percent increase compared to the same period in 2022. This should keep the market on track for a decent year, despite falling slightly short of its historical averages.
Notably, the shift in buyer dynamics caused by the rise in interest rates, which have soared as high as 8 percent, has investors sticking to a more conservative approach to their underwriting. Owner-users have emerged as the primary drivers of sale activity, and were the buyers of all four closed sales in September. Prices are beginning to soften, and price reductions are occurring more frequently, which is expected to improve buying opportunities for investors over the next 12 to 18 months.
Leasing activity has been concentrated in the 10,000- to 50,000-square-foot range, which captured 44 percent of the third quarter’s lease transactions, and similarly 38 percent in the 5,000- to 10,000-square-foot range. Lease rates have remained relatively stable since the first quarter, with Class A flex topping out near $1.50 per square foot and big box at about $0.90 per square foot.
The third quarter witnessed the delivery of 2.6 million square feet of new construction, bringing the year-to-date completions to an impressive 6.4 million square feet. This nearly doubles the annual average of 3.5 million square feet, with still another 1.3 million square feet slated for delivery in the fourth quarter. The speculative development pipeline is equally robust, with 8 million square feet of proposed projects poised to break ground over the next 12 to 18 months. Notably, 20 percent of this proposed volume is in the I-80 East submarket, specifically the Tahoe Reno Industrial Center and in Fernley, which has typically captured the bulk of new construction in recent years. This is due to several large development sites taking shape in other submarkets. These projects include Dermody Properties’ AirLogistics Park and Panattoni Development’s 395 North and Red Rock Commerce Center. Both are in the North Valleys and account for upwards of 4.5 million square feet combined.
As turbulence in the financial markets continues to ripple through the broader economy and produce some drag on the real estate sector, Northern Nevada’s geographic location will continue to serve it well. An out-of-state 3PL (third-party logistics) provider who is working on establishing a West Coast distribution center reiterated on a recent call that they cannot reach all their target customers within their required timeframes from any other West Coast market as efficiently as they can from Northern Nevada. Logistics demand, combined with the influx of electric vehicle battery and data center projects, will keep the region’s industrial sector highly active.