Reno/Sparks Office Market Q2 2011

Chase Whittemore, MS
Associate Office Properties Group
cwhittemore@naialliance.com

Reno/Sparks Office Market Q2 2011:

Vacancy:
Slight increases in the vacancy rates of the Central Reno and Airport Submarkets were not nearly deep enough to cut into the overall positive quarter that the Reno/Sparks Office market experienced in Q2. Overall, the office market saw 39,421SF of positive net absorption, which decreased the overall vacancy in Q1 from 18.23% to 17.71% in Q2. If this trend in positive net absorption continues, we should see a 2% drop in vacancy this year. These positive signs in decreased vacancy rates were the result of the South Meadows and Downtown Submarkets, which had 30,391SF and 17,127SF respectively, of positive net absorption. Even though the South Meadows Submarket experienced a very positive quarter, there is still a cautionary tale in the form of shadow vacancy-space available for sublease- within this submarket. The Downtown Submarket continues to pick up steam. New tech companies, new restaurants, and private investments all added to the buzz surrounding downtown Reno. The Downtown Submarket continues to benefit from low relative rental rates and companies relocating into Downtown from Class A, B, or even C properties previously in other submarkets.

Rental Rates:
Until the office market experiences several positive quarters in a row of declining vacancy, rental rates should stay relatively flat. Moreover, we could even see a slight decrease in rental rates within some submarkets. The South Meadows Submarket poses the most threat to decreased rental rates as thousands of square feet are set to hit the market in the coming months. The arrival of space by years end, coupled with the continuous shadow inventory that seems to plague this submarket, rental rates should remain flat. Do not be surprised if a few buildings even lower the asking rental rate in the South Meadows Submarket. In that submarket, rental rates are $1.30-$1.65/sf/mo full service gross. In the Meadowood Submarket, rental rates remained flat in Q2, ranging from $1.45-$1.85/sf/mo on a full service gross lease. In the Central Reno Submarket, rates did not change, ranging from $1.25-$1.45/sf/mo full service gross. The Downtown Submarket remained flat in Q2, ranging from $1.40-$2.00/sf/mo full service gross.