As Nevada companies move away from the work-from-home model and return to more traditional in-office work, will they find enough quality space to fill their needs? Commercial real estate experts in both major urban areas believe supply, especially in Class A product, will be increasingly tight in 2025, causing vacancy rates to decrease and rents to rise in response to the predicted supply/demand imbalance.
Northern Nevada
Mike Keating, SIOR, a broker at LOGIC Commercial Real Estate in Reno, said, “More and more employers want employees to return to the office. Returning to the office offers benefits to just about any business that far outweigh those in the work-from-home model. Certain industries were able to adapt to it, but now we’re four years out and we’re evolving. People are realizing that it’s more efficient for employees to all be together. The vacancy rate in the Reno-Sparks market has been hovering in the 8.7 percent range for the last 12 months [October 2023 to October 2024].”
Todd McKenzie, president of McKenzie Properties Management, Inc., a Reno-based developer, stated, “There’s almost a panic to gobble up the remaining, nicer space in town. We have really limited large-block space available. In addition, some companies that downsized now want to expand as employees come back to the office. Even some of the older Class C product is active because companies needing space are forced to renovate that space to give it new life.” With more than 70 years of commercial real estate development, McKenzie Properties Management has a portfolio of more than 2 million square feet in northern Nevada.
“In our existing buildings, as soon as we have a vacancy, multiple tenants are fighting to get into the space,” McKenzie continued. “Limited space creates competition. In our view, that’s created an opportunity to build for clients to correct the supply/demand imbalance.” McKenzie is currently developing SkyPointe at the corner of McCarran Blvd. and South Virginia Street, a mixed-use project with 120,000 square feet of office space in a five-story tower, more than 60,000 square feet of retail and restaurants, and a six-story parking garage. They plan to break ground in Q2 2025, with delivery expected at the end of 2026.
As in most major cities, the office market in northern Nevada is evolving to meet the changing needs of employers after Covid shutdowns and the switch for many companies to work-from-home. Part of that fallout was an increase in subleasing, according to Keating. “During Covid, some bigger office tenants moved out but still paid rent, and we’re still seeing some of that,” he said. “We’ve been able to backfill those spaces with other needs that have come in. As one tenant no longer has a need, another comes in and fills it.” He said one vacant 80,000-square-foot building was taken over by the State of Nevada for multiple government offices. Another 50,000-square-foot tenant no longer needed that much space, so LOGIC brought in a tech company to take over 30,000 square feet. “As long as the property is in a good location and is set up nicely, a void gets filled,” he said. “Some properties will take longer than others, and the bigger the space, the harder it is.”
The tech flight from California, especially from the Bay Area, has affected the Reno office market, putting additional strain on an already short supply of Class A space. “We used to see companies looking to relocate or expand their headquarters here,” said McKenzie. “They’d come into town and ask what was available around 50,000 square feet. We’d have to say, ‘Nothing,’ so they’d go elsewhere – Las Vegas, Phoenix, Salt Lake City. That stopped with the Covid lockdowns, but at some point, it will pick up again, and we don’t have the capacity for that kind of demand.”
Southern Nevada
Southern Nevada has a higher vacancy rate than Reno-Sparks. Brad Peterson, SIOR, senior vice president in CBRE’s Las Vegas office, said, “It’s been a long time since we’ve gone sub-10 percent. Vacancy rates were at 10.6 percent in Q1 2023, which was the lowest we’ve seen in quite a while. They reached 11 percent at the end of 2023, and by the end of October 2024 they were 12.5 percent.”
“For us, leasing activity has been steady,” said Sal Guy, partner in SHEQ Properties, a southern Nevada developer specializing in medical and professional properties. “During the summer of 2024, we were getting a lease a week for about a month and a half. We’re now 93 percent leased, so we’re happy with that.” SHEQ is currently developing a 12.5-acre center in West Henderson called The Village at St. Rose. It will include a four-story office tower with 81,000 square feet of space for medical and professional offices, scheduled to break ground in the first half of 2025 and to open in Q1 2026. The first floor of the tower will be retail, and several restaurants will be located in the same complex. Included in the project is a four-story tower fully leased by United Healthcare, scheduled for move-in Q2 2025.
“Class A still commands demand and interest from tenants, especially those who want to trade up,” said Peterson. “Class B is active in better products and better locations. In short, ‘the good stuff’ is what’s most active.”
One of the hottest markets for Class A space is Summerlin, on the west edge of the Las Vegas Valley. Andrew Ciarrocchi, senior vice president of management & operations for Howard Hughes, said, “We are fortunate to have strong leasing and occupancy at our office buildings.” In addition to three existing Class A buildings in Downtown Summerlin, Howard Hughes is now leasing its newest campus, Meridian, south of Downtown Summerlin. It consists of a three-story building totaling just over 147,000 square feet with customizable floorplans. “We know that many companies are fleeing traditional downtown and urban business environments for destinations like Meridian that significantly shorten commutes, increasing productivity and employee satisfaction,” he said.
As in northern Nevada, a changing market has affected subleasing of offices in the Las Vegas Valley. “In Q1 2021, more than 800,00 square feet was subleased,” said Peterson. “Now we’re tracking about 521,000 square feet [at October 2024]. Post-Covid, it got as low as 326,000 square feet. So, we’re still dealing with kind of a roller coaster when it comes to subleasing. Larger companies’ ‘right-sizing’ continues to happen as remote working is sticking around longer than most people thought it would. However, the trend is getting people back to the workplace.”
Ciarrocchi stated, “Space demands have changed over the past few years. Luckily, for those tenants that feel they have more space than they currently utilize, there are a number of prospective tenants needing additional space, leading to a slight increase in sub-leasing.”
The Employee is King
Real estate professionals in both ends of the state agree that the biggest trend in Nevada’s office market is the demand for spaces that will appeal to employees returning to work in the office. Recruiting and retaining quality employees is an important factor in determining the type of office environment companies choose. “There’s a focus today on employee happiness. When you’re competing for employees, you want every aspect to be competitive,” said McKenzie.
“People talking to us about leasing in the office tower in The Village say they’re interested because it helps with recruiting,” said Guy. “They want to hire top people, and those potential employees want to be in a nice, Class A environment.” The amenities currently in demand include an abundance of windows to bring in natural light, LED lighting to brighten indoor spaces, staff kitchens with coffee bars and snacks, and nearby or on-site parking.
Also popular are co-working areas where employees can collaborate in a lounge atmosphere rather than a cold conference room. “Places where people can connect, collaborate, and socialize are an important part of the experience and get people out of their houses and into the workplace,” said Peterson.
“Design is also important in creating an environment that makes employees enjoy coming to the office,” said Guy. “Office buildings are basically boxes, but design elements like flooring choices, paint colors, and furniture can make it feel more home-like instead of stuffy and sterile.”
Ciarrocchi noted, “Quality is important for both employee retention and client attraction. Employees want to work in locations like Downtown Summerlin with dozens of restaurants and stores steps from their office. And clients are attracted to do business with companies in attractive and vibrant locations.” In addition to a flight to quality, he added that “flight to a quality of life” is also a trend, with employees looking for shorter commute times between home and office.
Peterson stated, “Convenience is a big deal for office tenants, and it also increases productivity.” People like to have restaurants, fitness centers, and retail right at their feet.” Mixed-use projects offering an abundance of places to eat, shop, and run errands are becoming increasingly popular.
What Will the Office Market Look like a Year from Now?
In southern Nevada, one of the important factors will be the number of new office buildings being built, which is decreasing tremendously, according to Peterson. “It will be very difficult in the foreseeable future to build more office space,” he said. “Several factors play into this: financing is difficult, construction costs are much higher than they were in the past, and it’s hard for developers to find available land in the locations they want. There are a lot of barriers to entry for new office buildings to be built in the future. As supply decreases when we get into 2025-2026, vacancy rates will come down and rental rates and values will increase. Our shop believes we’ll see an increase in activity in 2025.”
Guy stated that he’s seen interest rates and construction costs both rise over the past four years. “The more we have to pay for capital and for construction costs, the more lease rates will go up,” he said. “If we can get interest rates and construction costs to go down, we’ll see an acceleration. So many people are moving into the [Las Vegas] valley every month that the need is here, and I don’t see that slowing down. I’m bullish on where we’re headed, but I don’t see a lot of change in the next year and a half. By that time, our main project will be completed and leased, and we’ll be able to take on new challenges.”
Keating expects the northern Nevada market to continue to do well into 2025 as more and more companies want employees to return to the office. McKenzie predicts vacancy in the Reno market will decrease significantly in 2025. “The demand is there, but rents are low and construction costs are high, so it’s difficult to get into a mindset to develop new projects,” he said.
“There’s a disconnect between construction costs – even for renovating and TI’s (tenant improvements) – and what market rates are. As we fill in the remainder of Class A space, rates will go up and make it more feasible to develop new office projects. For the benefit of the community, we need a lot more quality office product. There’s no great city that doesn’t have great office product. If we want to up our game as a community, we need to up our game with office. If we want to attract jobs, if we want the existing businesses to stay here and grow, we need to provide that capacity and that product for them.”
