Las Vegas
The Las Vegas Valley office market witnessed a modest decline in vacancy with continued downward price adjustments. While no new space completed construction during the quarter, the market reported 97,300 square feet of positive net absorption, sliding the vacancy rate 0.2 percentage points to 24.0 percent.
Looking ahead, eight projects totaling nearly 1.2 million square feet remain under construction, the majority of which are non-speculative government offices. Only 267,900 square feet of office construction is being developed for private-sector users. Of the 2.6 million square feet on the drawing board, nearly 800,000 square feet is from previously stalled or delayed projects, the majority of which will likely remain that way until the broader economic environment improves.
Despite a modest decline in the valley-wide vacancies from the preceding quarter, the vacancy rate remains 0.8 percentage points higher than the 23.2 percent reported one year ago (Q1 2010). This is the first time in more than two years the market reported positive net absorption without the help of pre-leased new construction, indicating a rise in demand for vacant second-generation space. However, measured among historical demand averages, the 12.0 million square feet of vacant space corresponds to nearly five years of excess inventory on the market at the end of the first quarter. Average asking rents across the valley fell to $2.05 per square foot per month, or a decline of 1.0 percent compared to the previous quarter (Q4 2010). On an annualized basis, average asking rents declined 5.1 percent from the $2.16 reported during the same period a year ago (Q1 2010). Declines in effective pricing on completed transactions are more dramatic.
As we have witnessed elevated vacancies for several years, the effect on pricing will continue for several more. Properties continue to be returned to lenders, having a material impact on pricing throughout the valley and further perpetuating a downward pricing cycle. Until a consistent and sustainable economic recovery takes hold, effective pricing declines will likely continue and a return even to pre-boom levels remains off the radar.
Southern Nevada analysis and statistics compiled by Applied Analysis.
Reno-Sparks
Activity breeds activity and it continues to slowly and steadily increase. Most people report this good news to inbound companies such as Brightpoint North America and Benco Dental Supply which are absorbing hundreds of thousands of square feet within the advanced logistics niche market. On the other hand, we do not hear enough about companies within the business service sectors such as Consolidated Agency Partners, MyNewPlace.com, Sanare, B&B Medical Services, Enel Geothermal and others that are new to the market or expanding locally, creating an economic impact, diversifying the economy and absorbing office space.
Ending 2010 with a decreasing overall vacancy rate of 17.84%, the office market continues to improve with a total gross absorption of 29,625 square feet, netting positive absorption of 8,889 square feet end of Q1 2011 and a reduction in vacancy to 17.73%. Although we continue to see the “flight to quality” or image upgrade of local tenants, we are seeing more and more inbound activity from our neighboring states.
From a building owner’s perspective, let’s not get too bullish. Specific submarkets within Northern Nevada seem to be leading the front from a standpoint of improving quicker. The South Meadows, or often referred to South Reno, and Downtown Submarkets are leading the trend accounting for over 100,000 square feet of gross absorption year over year; a continuation of our flight to quality theory. That said, the Northern Nevada office market still bears approximately 300,000 square feet of Class A and Class B vacancy that would require absorption before Class A (or otherwise) speculative construction would be warranted. Therefore, rents continue to lag behind positive absorption results, remaining flat within their respective categories.
As mentioned last quarter, we are taking baby steps towards a recovery in the office market. Lingering state legislation and global trends will continue to be the burden or the boost necessary to create the jobs required to have an effect on the Northern Nevada office market.
Northern Nevada analysis and statistics compiled by NAI Alliance.
