Unprecedented Industrial Rent Growth Puts Eyes on Northern Nevada
By Shawn Jaenson, Senior Vice President, Industrial Specialist, Kidder Mathews
The Northern Nevada industrial market is composed of 98.7 million square feet of industrial real estate spread across six submarkets. Northern Nevada’s centralized location allows for a one-day truck service to more than 60 million customers. Couple that with the fact that Nevada has no corporate tax, personal tax, inventory tax, franchise tax, or special intangible tax and the city is one of the most desirable industrial locations in the Western U.S.
What was once thought of as unattainable in Northern Nevada has become the norm as nearly every record or statistic has been shattered and the market continues to show no signs of slowing. The overall market vacancy rate plummeted in 2021 to 1.7 percent, with a direct vacancy rate of 1.6 percent — a more than 200 percent decrease from the start of the year when overall vacancy rates were 5.3 percent and direct vacancy rates were 4.9 percent.
Due to the unprecedented demand, new product in Northern Nevada has never been more crucial as new construction struggles to keep pace with market demand. In 2021, Northern Nevada had a positive net absorption of just over 7 million square feet, which far outpaced the 3.6 million square feet of new construction deliveries. This marked the third consecutive year that new construction failed to keep pace with net absorption, highlighting the importance of new development in the market.
Land is a scarce commodity in Northern Nevada as nearly every developable site is spoken for with current or planned construction. There is more than 5 million square feet of speculative construction currently being developed in Northern Nevada, with an additional 4.7 million square feet of planned development in the pipeline. Even with a fairly robust construction pipeline that would account for a nearly 10 percent growth in supply, the majority of new product is being pre-leased well before the shell building is complete. This has left many prospective tenants scrambling to find new space. Landlords are taking advantage of the market by continuing to aggressively push rents with every new deal. Market-wide, average asking rates have increased from the first quarter of 2020 by more than 42 percent, with the largest increases (55 percent) occurring in spaces larger than 50,000 square feet.
Some of the largest national institutional owners remain focal points in Northern Nevada. Companies like Prologis, Link Industrial, AEW, Clarion, Panattoni, California State Teachers Retirement System (CALSTRS), Starwood, Dermody, Ares (formally Black Creek Group) and many more all have substantial portfolios in Northern Nevada.