Tuesday, November 8, 2011

Reno/Sparks Office Market Q3 2011

Posted by: Dominic Brunetti, CCIM
Vice President
Office Properties Group

Reno/Sparks Office Market (Q3 2011):

The U.S. economy and labor markets start – stop momentum continues to influence the local market of Northern Nevada. Coming off a relatively positive Q2, market-wide vacancy stood still at 17.88%. The one noticeable difference quarter over quarter was the reduction in available sublease space; a sign of master leases expiring and the continuation of companies taking advantage of short term sublease opportunities at advantageous pricing. Neither way presents a fortifying net absorption gain to the local office market.

The long term and very large master leases of the home builders and associated trades that signed during the residential fizz have expired or nearing expiration. This has left those building owners with the decision to market the space in its entirety or to appeal to the Northern Nevada average tenant of 3,000 to 5,000 square feet by employing creative demising plans. Those building owners that have been proactive, such as is the case in the South Meadows submarket, have been able to redesign floor plates and back fill at market rates; an imperative strategy in today’s office market, if the building owner can afford to do so.

Rental Rates
Pockets of the Meadowood submarket, namely the Kietzke Lane corridor, and specific buildings within the CBD, have seen gradual gains in lease rates. Although the free rent concession continues to play its key role, starting lease rates for quality space in these areas have touched the $2.00/sf/mos mark. Quality space in these two submarkets is limited and with no sign of new construction on the horizon, there will be instances when building owners will be able to push lease rates once again.

Overall, Class A office space averages between $1.70 - $1.80/sf/mos. Starting at the top, there is an approximate 20% discount between product classes throughout the Truckee Meadows.