Nevada is growing daily a trend no one expects will end any time soon, and the effects of growth include low unemployment and the creation of new jobs and opportunities at every turn. As businesses move in and existing businesses expand, commercial real estate grows in importance, but there’s always the question: What happens next?
Retail
At both ends of the state, the retail market is expected to stay strong. With the state growing on a daily basis, the need for shopping centers and neighborhood grocery centers should continue unabated.
For Reno, the hottest area of growth has for some time been the McCarran and Kietzke area, a retail hub growing with restaurants, clothing and sports stores, as well as big box users such as Office Depot and Gart Sports in the Firecreek Crossing center. “That remains the retail hub, the market area, and when retailers come into the market to open their first location, 95 percent of the time this is the geographic area where they want to go because it’s a regional shopping area,” says Roxanne Stevenson, vice president and co-owner of Grubb & Ellis/Nevada Commercial Group. “I see it as a retail hub for many years, during 2000 and beyond.”
A second area Stevenson sees developing is the McCarran/US 395 corridor, where several large chain stores have located, including Wal-Mart and Home Depot, offering a starting point for big box users new to the area.
A third area involves Sparks, specifically with the growth of the Spanish Springs area Though Stevenson doesn’t expect this area will achieve the concentration of the other two, the recent extension of Sparks Boulevard to Pyramid Highway makes accessing Spanish Springs easier and faster. Also, there are rumors, unsubstantiated as of yet, of a mall rivaling Meadowood to be located in the area. Still, the Firecreek site has room for several additional large retail spaces around 20,000 or 25,000 square feet.
Another trend Stevenson anticipates is the return of the traditional neighborhood shopping center anchored by a grocery store, partially because the land available for retail use is growing tight. “We’re going to see more of that as developers fill in these neighborhoods that are under-served and running out of options for these big boxes. They’ll be going back to the neighborhood concept.”
Overall, Stevenson expects the vacancy rate will remain below 5 percent, a healthy market. As for absorption rates, a great deal of the available space in 1999 was leased, and the trend is expected to continue. Lease rates have remained static for a long time, with minor increases, but with the vacancy rate as low as it’s been since it began being tracked, an increase is expected. Alleviating some of the need for space, 900,000 square feet have been approved to come online in the year 2000, but Stevenson doesn’t expect all of it will be built in the next year.
In the south, 900,000 square feet sounds like nothing, as Kit Graski, senior vice president with CB Richard Ellis, expects the Las Vegas area will see some 4.5 million square feet come online in 2000. That’s in addition to about 4.5 million square feet under construction that was slated for completion by the end of 1999. Those numbers come as something of a surprise, since in 1998 the retail space coming online was about half that.
Most of the new centers being built are very large centers, Graski says. Las Vegas’ future includes Centennial Crossing, withal-most 800,000 square feet in the northwest, Silverado Ranch, bringing 340,000 feet into being, and the EastGate Power Center, which has approximately 300,000 square feet. Those alone add up to more than a million square feet, says Graski, in just three centers. “The best thing is the banks are requiring pre-leasing ahead of time and most of these centers are anchored by big box users that have already signed up. Centennial Crossing has Wal-Mart and Home Depot, with about 400,000 square feet pre-leased, huge retailers committed to these sites.”
What they aren’t building in Las Vegas is unanchored strip centers on spec.
Graski expects retailers will continue to follow the new Beltway, and that “as each section completes or nears completion you’ll see new centers being built where the Beltway exits.” When new retailers come to town, that’s where they want to go.
And even while all the square footage is coming online, absorption rates continue to keep pace with the construction. What’s not keeping pace is land prices. Land availability remains, and there’s enough retail land to keep going for awhile, Graski says, “but land prices have become extremely high in comparison to other markets around the country. The question is if we were to slow, would retailers turn their heads and look at other markets? Chances are they won’t, but if at some point in time our prices get out of whack with everybody else’s, it’s possible they’ll feel better focusing their energy over in Denver. Land availability is part of the key, but land has become expensive.”
Industrial
When I came here four years ago there was virtually no inventory,” says Mel Koich, with Lee & Associates in Las Vegas. “Almost everything was 100 percent leased. Then some major developers came in and started building some spec projects, which really increased the vacancy level so we got up to 10 percent vacancy. That was a very disturbing issue for these people, and that’s pretty common in most parts of the country. They weren’t used to that and everyone was screaming, ‘We’ve over-built.’ But you know, we’re absorbing about three to four million square feet a year and we’re building the same amount, so we’re right along with the curve.” Koich doesn’t expect to see a lot of new construction in 2000. He does expect to see the numbers of new projects dropping because there hasn’t been a lot of speculative developing in the last 12 months, and existing product built in the last two or three years is now being absorbed.
What skewed the numbers for Las Vegas, according to Koich, is the Las Vegas Motor Speedway that came online a little over two years ago with 1.5 million square feet of space, which wasn’t filled for the first two years. That much vacant space drove the vacancy rates up, though Koich expects to see the rate drop to 8 percent or below in 2000. Prices, however, will probably stop their downward trend, and start back up again as the vacancy rate decreases.
There’s still land available, says Koich, but largely in outlying areas and without utffities or infrastructure. “There’s not a lot of actual property available at this point that could be developed in a very short time,” says Koich. A proposed release of BLM land would add considerable acres into the market, but for now the dig situation has been put on hold.
Existing buildings are currently being utilized for distribution warehouse uses, companies coming in and locating a western regional distribution center in the area and capitalizing on the low cost of back freight “We’re an inbound city everything we consume here is brought in by truck, rail or plane, so haulers are going out empty for the most part. Their back rate charges for hauling out of here are really inexpensive.” Areas that can expect to see continued use and growth, says Koich, are the southwest, southeast and north markets.
In Reno, Paul Perkins, SIOR, CCIM, with Coffiers International, expects to see buildings continue to get larger. Dermody’s 420,000-square-foot spec building came online in 1999, setting a record in spec building size. But Reno has seen a number of users arrive demanding buildings in the 200,000-, 300,000- and 400,000-square-foot size, users such as Amazon.com and the barnesandnoble.com distribution center. Buildings are growing taller, as well as larger, utilizing more cubic feet.
“What will drive the market here in terms of production and construction will be e-marketers who will need fulfillment centers. Amazon. com is a classic example. We are in a prime position geographically and in terms of infrastructure, transportation and work force,” says Perkins.
Some of the companies coming in will be looking for build-to-suit properties and Perkins predicts the market will remain strong. The industrial real estate market will continue to look to the south end of the Truckee Meadows, to the new Patrick industrial center, to Stead and Fernley and outlying areas with a few isolated infill spots such as Damonte Ranch in the south of town. He expects some 3 million square feet of spec product to come online over the coming year, a prediction that comes after seeing 3.6 million square feet completed in 1999 when at the beginning of the year developers had expected 1.2 million.
Dermody’s 420,000-square-foot building had another effect on the industrial market— that of pushing the vacancy rate from 8 percent to 9 percent. Anything up to 11 percent is considered a balanced market, and if some of the Dermody space is absorbed, Perkins expects rental rates may increase slightly.
Office
The formula for picking a great locale for an office building entails placing it close to where the top executives live, according to Ken Stark, a partner in NM Hale Lane Gallagher in Reno. So with southwest Reno running out of land for office buildings, Reno is seeing significant increases in land prices for Class A office space. “In my crystal ball, certainly we’re fine for the next five years, but once we go beyond that, closer to 10 years, they’ll come up with some different areas in town,” says Stark. “They’ll have to, for additional park and residential land development.”
For the office market, a healthy vacancy rate varies from 9 percent to 15 percent, says Stark, and Reno’s running right in that range, even dropping below 10 percent before new products came online. For the future, Stark says developers should pay attention to their location and the competition. With all the new product coming online recently, he expects to see construction level off in some areas, with maybe 60,000 square feet at most going into the South Meadows area and 50,000 square feet to 90,000 square feet around Meadowood Mall.
For downtown Reno, Stark says there’s talk of a Class A tower on the site of the Mapes hotel after it is leveled later this month. “It wouldn’t surprise me if something like that happens in the next three to five years. In terms of downtown absorption last year, there was about 148,000 square feet of leases signed and net absorption downtown was almost 85,000.”
The only negatives, he says, are the firms leaving downtown, such as the law firms of Woodburn and Wedge, and Lemons, Grundy and Eisenberg. Those older offices, Class C product, are where the highest vacancy rate occurs, with offices taking six to 12 months to rent unless the landlord is maintaining and upgrading the building and the neighborhood is considered safe.
In Southern Nevada, Vic Donovan of Colliers International expects some 400,000 square feet of Class A office space to be added to the market in 2000, including the new Hughes product, with both vacancy and lease rates holding steady.
