*The following article was written by Evan Meyer and curated by Western Real Estate Business. It features information provided by Reno commercial real estate broker Evan Meyer. For more information about Western Real Estate Business, check out their webpage here.
The overall business climate continues to thrive in Reno as the regional economy quickly rebounded from the pandemic fueled recession in 2020. In fact, Reno performed far better than most markets on the West Coast during the past 18 months with low and declining unemployment rates (4.2 percent in August) and expanding job growth (7.2 percent year-over-year). The region’s rapid growth continues as many new businesses move into the area, a trend that accelerated over the past few years. Most relocations come from California, attracted by the strong economic climate and business-friendly policies in Northern Nevada. As one of the fastest growing regions in the U.S., growth is occurring across multiple industries including technology, manufacturing, distribution, financial and healthcare.
The diverse and dynamic nature of the regional economy drives the overall performance of the office market, producing continuous years of falling vacancy and a decade of rising rents, even through the bulk of the pandemic. At the end of the third quarter, the vacancy rate was 7.7 percent, a 130-basis point (bps) drop compared to the previous quarter and a 170-bps drop compared to the same time last year. In fact, vacancy rates continue to decline across all submarkets due to strong demand and tenant expansion throughout the region. As a result, asking lease rates increased nearly 10 percent year-over-year and are expected to see additional growth in the near term. Concessions are holding steady with many landlords offering turnkey TI’s for strong credit tenants. Additionally, net absorption has, gained momentum during 2021 with 245,618 square feet, year-to-date, and 212,295 square feet in 3Q 2021.
The suburban submarkets have been very active during the past 3-4 months, due in large part to high levels of tenant demand. However, with low vacancy rates and a lack of leasable inventory beginning to surface, the supply and demand imbalance will be something to monitor going forward. This trend is especially prevalent within Class A inventory, particularly in the Meadowood and South Reno submarkets with only a few spaces over 5,000 square feet and a small handful between 2,000-5,000 square feet. To illustrate the current and impending challenges, much of the future space availabilities are already in negotiations as expanding tenants are eager to find quality space.
Although strong market fundamentals and pent-up demand typically drives new construction, new office development in Reno remains relatively stagnant as only 523,000 square feet of new office product has been delivered since 2010. There is currently 277,000 square feet under construction (191,000 square feet in Downtown Reno) and an additional 600,000 square feet of proposed projects. However, due to the high cost of construction there are only a couple of significant developments on the horizon.
Lastly, investment market activity is through the roof with active buyers looking to invest in Reno, largely due to recent price increases and the competitive business landscape. While most of the demand has been coming from out-of-state investors, it is becoming increasingly difficult to find available inventory to purchase as there are more buyers than sellers right now. Looking ahead, most of the trends are expected to hold strong as Reno has become one of the hottest markets on the West Coast.
Evan Meyer is an experienced commercial broker that can help you find your ideal workspace.
