Northern Nevada
By Jordan Lehman, Colliers | Reno
Northern Nevada’s office market experienced healthy leasing activity, cooling sales volume, and an increase in sublease space in the second quarter of 2022. Continued tenant demand pushed net absorption to nearly 17,000 square feet, the fourth consecutive quarter of positive demand. While sales activity cooled off this quarter to $31.1 million, down 46.3 percent year-over-year, average pricing dipped by only a few dollars to $232 per square foot.
Though Reno evaded the flood of sublease space that plagued many larger office markets throughout 2020 and 2021, recent quarters have seen a slight uptick. While a handful of tenants have released some or all of their current office footprints to the sublease market, other office users have seized the opportunity to lease space that had not previously been available. This suite shuffle will likely continue throughout the year.
Northern Nevada’s economy saw continued growth throughout the first half of 2022. Reno’s unemployment rate increased slightly to 2.9 percent in May 2022, though it is still down 220 basis points year-over-year. According to the Reno/Sparks Association of Realtors, single-family home sales volume dropped by 30.3 percent year-over-year in June 2022. Additionally, new listings grew by 29.0 percent in the same period. These trends should provide much-needed relief in the residential market, which will allow for more manageable growth in the coming years.
Southern Nevada
By John Stater, Colliers | Las Vegas
After experiencing a significant expansion last quarter, southern Nevada’s office market cooled at midyear. Net absorption remained positive, at 45,443 square feet, but did not keep pace with the 129,272 square feet of new development. This lifted vacancy to 12.7 percent this quarter, from 12.5 percent one quarter ago. Asking rental rates increased to $2.37 PSF on a full-service basis.
Of the 5.8 million square feet of office space that was vacant in the second quarter of 2022, 753,420 square feet was offered for sublease, a 21.2 percent decrease from one year ago. Office investments had a sales volume of $358.7 million in 45 sales totaling 1,164,204 square feet with an average sales price of $308.15 PSF at midyear 2022. The average cap rate was 7.2 percent.
This quarter’s relatively low net absorption number and slight increase in vacancy could suggest a turn in the valley’s office performance. Southern Nevada is still recovering from the 2020 lockdowns and may continue growing even when the national economy is not.
The office market is anticipated to end 2022 with strong net absorption, but increased vacancy. This is because the valley’s office inventory is set to expand 382,109 square feet. While this space is 41 percent pre-leased, representing future net absorption, it could add as much as 225,000 square feet of vacant space to the market.
