2014 Year in Review/Office Market Report

Tesla’s announcement captured the headlines in the industrial sector, others such as Independent Salon Services, Ghost Systems, Flirtey, White Rabbit and most recently, Clear Capital, have joined the growing list of tech-related companies joining our entrepreneurial community.  These transactions are imperative to the momentum of the office market as just these companies alone absorbed over 50,000 gross square feet. The inbound activity, coupled with organic corporate growth, fortifies the continued advancement in the office market with vacancy rates continuing to decline to the point that there are numerous developers planning on building speculative office product; an undertaking our community has not seen for the past decade.  With Class A vacancy rates in the three core submarkets; Downtown, Meadowood and South Reno, decreasing to 10 year lows, prime office land acquisitions have been completed poised for future construction.  Keep an eye out for the Rancharrah Business Center; a future project in the highly sought after Kietzke Lane corridor and existing building repositions made by Basin Street Properties (Gateway) and NevDex (Professional Circle) in South Reno. Current Market Statistics:

• Overall vacancy (not including Garden Office): 9%
• Class A lease offerings starting at $2.00 per square foot/month, Full Service
• Nearly 600,000 SF of office space sold compared to 902,000 SF in 2013
• Average acquisition price per SF: 2013 = $103/SF; 2014 = $166/SF
• Anticipated year end net absorption of approximately 60,000 SF pending outstanding lease negotiations (compared to over 200,000 SF in 2013, a decrease partly attributable to the disposition of assets in bad debt situations)

Outlook: The horizon of Northern Nevada’s office market has potential to be very fulfilling.  As previously mentioned, inbound activity remains sturdy, but as equally impressive is the growth of locally grown companies.  Those such as Sierra Nevada Corporation, No-ip and Noble Studios represent just a few of this cross section.  The lure of geographic location, cost of living and quality of life create the competitive foundation for these companies to expand by recruiting local and out of area personnel.  DCG’s team of office experts expect this to endure as Reno/Sparks continues to be recognized as a burgeoning city for the creative spirit.  Thus, our community will continue to grow at a healthy rate throughout 2015 and experience sustainable net office space absorption of approximately 100,000 square feet.  This may appear minimal, but it will have an imperious effect on our vacancy rate, and continue to match our 5 year net absorption average of 98,000 square feet.  We foresee the vacancy to hold secure at 13.75% EOY 2015.  The majority of this absorption will take place in Class A facilities.  We will begin to see building owners, with increased occupancy, reinvest in their properties to match the evolving demand of tenant quality expectations; the quality of work space is a reflection on the progressiveness of our business community.]]>