The Trump, Tesla Effects in Northern Nevada
Local market conditions are always related in some way to what’s happening on the national stage, so let’s first acknowledge our new leadership. Trump has continued talking like the businessman he is and in very much the same style that got him elected. In reaction, equities markets have continued to boil over into record-setting heights as the business sector embraces the potential for more business-friendly stances that will sooner or later emerge from Washington. Business resurgences always impact Northern Nevada, thanks to both its strategic location advantage in distributing to the 11 Western states and its highly business-friendly state climate.
As for Tesla, 2016 showcased increasingly tangible direct and indirect effects from the expanding Gigafactory. Tesla leased a large warehouse in the Tahoe Reno Industrial Center near the Gigafactory to receive product for several years. Panasonic, Tesla’s quieter partner in the Gigafactory, also leased a large warehouse in the same park that is close to the plant. Another Tesla vendor, Daehan Solutions America, an international company supplying the automotive industry and headquartered in South Korea, leased a large space in the vacant ex-Amazon space in Fernley. These three transactions alone comprise a large portion of the market’s total quarterly absorption. Additionally, Tesla vendors and contractors have leased several other spaces while the plant is being built. Clearly, Tesla’s positive impact in the market is becoming far more quantifiable.
Northern Nevada experienced its sixth quarter in a row of declining vacancy in the fourth quarter of 2016. More than 2 million square feet was leased, which is about 25 percent higher than our five-year average and more than double that of the same quarter results in 2015. The result is a declining vacancy that now sits at 7.8 percent, a healthy balance between available inventory and demand.
Last year’s activity added plenty of new Class A inventory. However, with a steady pace of absorption, a few good consecutive quarters could put big box availability in moderately short supply. This will be especially true if prospects are looking for specific locational vacancies. With the business sector’s reaction to the Trump presidency, we would logically assume a strong demand for top Western distribution locations to continue. Investors are still seeking opportunities in our market as the yields here are superior to the overheated Southern California markets. All in all, the Northern Nevada market seems poised for another bright year in industrial real estate.
— By Thomas Miller, President, Miller Industrial Properties. This article first appeared in the April 2017 issue of Western Real Estate Business.