The long-languishing market for industrial property in much of Northern Nevada — including the Carson City and Carson Valley region — is quickly turning from bear to bull.
Inventory in Carson Valley is dwindling, according to Chad Coons, president/broker with Gillmor Coons Real Estate Group in Genoa.
“Nobody has ever tracked absorption or vacancy, so hard to give an accurate figure,” says Coons. “Space under 10,000 square feet is getting very limited, which could mean more build to suit. Space above 20,000 to 100,000 square feet still has inventory but it’s starting to tighten.”
Coons says the area doesn’t have many large buildings designed for distribution businesses. Instead, Carson Valley is attracting mostly manufacturers from California with some company relocations from Reno and Carson City.
“But we’re not seeing downsizing any more, which is good news,” he says.
Vacancy rates in the Carson City-Mound House area are down to 8 percent from 11.43 percent three years ago, according to Andie Wilson, a broker with Coldwell Banker Commercial Premier Brokers in Carson City.
“Eight percent is a healthy market,” says Wilson. “If it continues to drop it will quickly move from a tenants’ market to a landlords’.”
In Mound House, rents on industrial properties have bounced back to 35 cents a foot after dropping to 25-28 cents in recent years from a high of 40 cents in 2007, says Coldwell banker’s Wilson.
Wilson says the Carson City Board of Supervisors recently voted to keep water and sewer hook-up rates low to help give the medium-sized town some advantage for new construction over Reno and Sparks. Still, she doesn’t expect to see any building for two to three years.
Wilson says Carson City has little available land and landowners are holding onto property hoping to recoup the elevated prices they paid before the recession. She says there’s only been one industrial land sale in the capital in the last six years.
And lending is tight.
“I know some very solid developers that have been unable to get financing,” says Wilson.
That tightening inventory in Carson City, Mound House and Douglas County is reflected as well in the region’s metropolitan market.
Vacancy rates in the Reno/Sparks area fell more than half a percent in the second quarter, from 13.6 percent to 12.9 percent. And if space that’s available as sublease is excluded, the rate drops to 11.3 percent, according to J. Michael Hoeck, senior vice president/principal, Industrial Properties Group at NAI Alliance in Reno.
“Vacancy rates could drop by another full point by year end,” says Hoeck.
In Reno and Sparks, the market is especially constrained at the high-end. NAI Alliance’s Hoeck says vacancy rates for large, class A buildings is as low as 5 percent.
“Above 200,000 square feet class A spaces, there’s literally four spaces with one pending, imminently, in escrow,” says Houck. “Of the three remaining, two have very strong activity.”
Hoeck says two developers might break ground on large buildings by years end, once they see if the 524,800 square foot spec building planned in Tahoe Reno Industrial Center succeeds.
“It’s rumored to be 75 percent spoken for,” says Hoeck.
That building is now under construction and expected to be completed by the first quarter of 2014. It’s being built by SJS Commercial Real Estate of Deerfield, Ill., which said it’s making its first move in northern Nevada because it saw a need for Class A industrial space.
Hoeck expects to see rents rise due to the shrinking inventory and the sale of the 9.5 million square feet of the ProLogis/Lehman Brothers portfolio, due to close in the third quarter, to an industrial company which hopes to elevate rents, he says.