2012 Year End Review & 2013 Commercial Real Estate Forecast
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- Ethelbert Jordan
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1 Northern Nevada 2012 Year End Review & 2013 Commercial Real Estate Forecast Colliers International, Reno Nevada Accelerating success.
2 Colliers Broker Team The experienced professionals of Colliers will create solutions for all of your real estate needs. With our professionals, you can be assured of excellent service no matter the type of requirement or location. Retail Services pg 4 Rick Casazza Sr. Vice President ph rick.casazza@colliers.com Roxanne Stevenson Sr. Vice President ph roxanne.stevenson@colliers.com Industrial & Investment Services pg 8 Ted Stoever II Vice President ph ted.stoever@colliersreno.com Adam Wexelblatt Senior Associate ph adamwexelblatt@colliers.com Office Services pg 12 Tim Ruffin, SIOR Sr. Vice President Managing Director ph tim.ruffin@colliers.com Melissa Molyneaux, CCIM Vice President ph melissa.molyneaux@colliers.com Property Management Colliers Operations Team Robert La Chance Sr. Portfolio Manager ph robert.lachance@colliers.com Brenda Seevers Property Manager ph brenda.seevers@colliers.com Jerri Geer Administrative Assistant ph jerri.geer@colliers.com Support Staff Katina Parco Operations Manager ph katina.parco@colliers.com P. 2 COLLIERS INTERNATIONAL - RENO
3 Accelerating success. The Right Place For Northern Nevada Commercial Real Estate Services Colliers International Reno is one of the most successful, and innovative commercial brokerage firms in Northern Nevada, setting the standard for providing exceptional services in commercial real estate sales, leasing, and management. Through teamwork, dedication, and effective and efficient client support, the company is deeply committed to excellence and progress in every endeavor it undertakes. Members in the firm have an in-depth understanding of the issues impacting the on-going evolution of commercial development in Northern Nevada, and share that expertise with every client on every transaction. The Colliers International Reno office began operations in 1999 and is staffed with the most experienced, respected brokers in the area. Specializing in all aspects of commercial real estate, the firm has assembled a team of highly-talented and experienced professionals in industrial, retail, office, investments, and land. The combination of the Reno office s experienced brokers and staff presents a multi-disciplined team approach that allows the firm to successfully complete many of the largest and most complex real estate transactions in the Reno/Sparks market. This approach allows Colliers International to provide clients with a broad range of expertise including market research, financial analysis, building systems and design evaluation, operational and cost analysis, land planning and documentation review. In addition, Colliers International has an in-depth understanding of the issues impacting the Reno/Sparks development process. It has become increasingly important to understand and implement effective construction management and real estate development procedures in today s competitive and complex real estate markets. Colliers International is committed to aiding and guiding its clients through the maze of procedures and criteria often required by lenders, public entities, contractors, architects, engineers, material suppliers, advisors, and other services. We assist in the analysis of real estate transactions by performing preliminary and full service feasibility studies, site analysis, zoning/mapping evaluation, architectural/engineer selection, and contractor/subcontractor bidding and selection procedures. REGIONAL SUMMARY Seattle Greater Reno-Tahoe, once known primarily for its gaming history, has transitioned into a more diverse economy in recent years. Emerging industries include clean energy technology and software, which are helping to attract a younger and more educated population, as well as entrepreneurial companies. PRO-BUSINESS TAX CLIMATE > No State Corporate Income Tax > No Personal Income Tax > No Franchise Tax > No Unitary Tax > No Estate or Gift Tax > No Inheritance Tax > No Inventory Tax QUALITY OF LIFE > 300 days of sunshine per year > Average temperature of the region: 67.4 degrees (high) and 33.2 degrees (low) > Air quality index: 81.9 percent > Average commute time: 15.6 minutes > 6 percent of population walk or bike to work > Largest concentration of ski resorts in North America are all within a fifty-mile radius MAJOR TRANSPORTATION HUB > Reno-Tahoe International Airport San Francisco Los Angeles San Diego Portland Reno/ Sparks Sacramento Boise Helena Salt Lake City Phoenix Cheyenne Denver Albuquerque COLLIERS INTERNATIONAL - RENO P. 3
4 YEAR END REVIEW RETAIL RENO NEVADA RESEARCH & FORECAST REPORT Will 2013 Be More of the Same? Over the past few years, some of the retail newsletter headings have been: Not As Bad Is The New Normal, Bouncing Along The Bottom, Shift To Thrift, The Year Of Stabilization and Let The Recovery Begin! Will the 2013 headline finally indicate slow growth for Washoe County as other markets are now experiencing or will it be more of the same? MARKET INDICATORS Q4-12 ABSORPTION CONSTRUCTION LEASE RATES Projected Q1-13 Of the 18.5 million square feet of retail space that Colliers tracks, the overall vacancy has remained relatively flat for the past three years. At the close of 2012, the shopping center vacancy within Reno/ Sparks stood at 16.2 percent, up slightly from the previous year s number of percent. Quoted overall average monthly rents at the close of the year fell from $1.35 per square foot to $1.29 per square foot which is not bad when you consider 2010 s 14 percent decline. Another encouraging note is that the year posted an overall positive net absorption number of approximately 65,000 square feet. SOARING ONLINE SALES DURING HOLIDAY SEASON According to the National Retail Federation (NRF), total holiday retail sales increased 3.0 percent. However, Christmas was the most digital ever and online holiday shopping grew a whopping 14 percent versus one year ago to $42.3 Billion. Black Friday was also robust with a 6.6 percent sales gain year over year, which could be attributed to extended hours as some stores opened on Thanksgiving Day. Some industry experts are predicting that Black Friday s days are numbered as more and more stores push up their opening times. Some of the winners for the season include Amazon.com (up over 40 percent from 2011), American Apparel, Nordstrom s, Costco, Ross, TJX, Whole Foods, DSW Shoes, Family Dollar, Pier 1, Williams- Sonoma, PetsMart, Buffalo Wild Wings and Starbucks CLOSINGS HISTORICAL AND ASKING RATES 18.00% 15.00% 12.00% $1.60 $1.50 $1.40 As we emerge from the recession, we expect rents to level out, now that vacancy rates have stabilized. 9.00% $ % $ % $ % 3Q Q Q Q Q Q Q Q 2012 $1.00 Vacancy Rate 16.18% Asking Rental Rate
5 2012 YEAR END REVIEW AND 2013 FORECAST SUBMARKET MAP KEY South Reno 2 Meadowood 3 Southwest Reno 4 Parklane 5 Airport 6 South Virginia 7 Kietzke 8 Reno Redevelopment 9 Sparks Redevelopment 10 Sparks Industrial 11 Northwest Reno 12 Northeast Reno 13 West Sparks 14 Northeast Sparks 15 North Valleys 16 Spanish Springs Pyramid Highway There were a few closings such as Scolari s in Lemmon Valley and Firken & Wolf. The good news is that the number of closings is much less than in previous years and the Scolari s has already been back-filled by Grocery Outlet and Big Lots. Unfortunately, 2013 will experience a few more including the JC Penney Home Store, two Old Navy locations and at least one Office Max. Currently, there are twenty boxes available in the 20,000 to 170,000 square foot range with activity on only a few of them with options for back-filling limited. SIGNIFICANT TRANSACTIONS/TENANT ACTIVITY There were some significant transactions completed, probably the most visible being TJ Maxx, Old Navy Factory Store and the Lowe s relocation in The Legends. Tenant activity was good in certain categories such as dollar/discount concepts including Family Dollar, 99 Cents Only and Dollar General entering our market for the first time with multiple locations. Tuesday Morning is expanding and consolidating their Reno and Sparks locations by back-filling the former Ben Franklins at Shopper s Square. Medical and service users were busy taking advantage of great retail and restaurant space that they could not previously afford and landlords were not willing to lease to them. For example, EyeMart Express located in the former Bajio s; Pacific Dental secured two locations one in a portion of the former Brewhouse and the other in a closed Blockbuster; Concentra Urgent Care leased the former Cheeseburger Island building and Renown leased a space previously occupied by Payless Shoes. EXPANDING RESTAURANTS AND RETAILERS The International Council of Shopping Centers (ICSC) reports that almost 40 percent of all new tenancy will be restaurants. We are following that trend in Northern Nevada as well. Fast food and fast casual restaurants expanding include Popeye s, McDonald s, Taco Bell, Steak n Shake, Panera Bread, Chipotle, Subway and Five Guys Burgers. There are numerous independent restaurants that also opened such as Squeeze- In, Sushi 7, Twisted Fork, Brewer s Cabinet and Un Café. Buffalo Wild Wings signed a lease in The Legends and is also working on a Carson City location. Retailer expansion was dominated by discounters; however other active segments included medical, automotive, wireless and service. In addition, Forever 21 is adding a second location at Meadowood Mall and rumors are flying that Hobby Lobby and H&M may be looking here seriously. Contracting retail categories in 2013 are comprised of large grocery formats, video and video game stores, book stores, office supplies NEW & UNDER CONSTRUCTION TOTAL COMPLETED NEW CONSTRUCTION 2012: UNDER CONSTRUCTION 2012: COMMENCING CONSTRUCTION 2012: PROPERTY SIZE PROPERTY SIZE PROPERTY SIZE Lowe s (Legends relocation) 124,076 SF South Creek 23,875 SF Wal-Mart (Legends) 170,000 SF TJ Max (Legends) 24,837 SF Old Navy Factory Store 12,495 SF IMAX Theater 50,000 SF South Creek 12,067 SF Sticks (Mid Town) 5,000 SF Buffalo Wild Wings Pad (Legends) 7,500 SF O Reilly (Spanish Springs) 6,000 SF Pad at Ridgeview 5,000 SF Taco Bell (Legends) 2,556 SF SIGNIFICANT SALES ACTIVITY SHOPPING CENTERS SALES: CENTER ADDRESS PRICE SALE DATE GLA (SF) PRICE PSF CAP Air Center Plaza S McCarran Blvd., Reno, NV $ 3,800,000 3/31/12 51,971 SF $ % Monte Vista Village 9570 S McCarran Blvd., Reno, NV $ 1,575,000 10/1/12 14,920 SF $ % Wildcreek Plaza 2975 El Rancho Drive, Sparks, NV $ 1,150,000 6/1/12 14,096 SF $ % on actual income Sierra Town Center Out parcel Reno, NV $ 1,100,000 6/12/12 15,101 SF $ N/A Arlington Gardens 606 W Plumb Lane, Reno, NV $ 550,000 12/1/12 11,683 SF $ % COLLIERS INTERNATIONAL - RENO P. 5
6 2012 YEAR END REVIEW AND 2013 FORECAST RETAIL MARKET COMPARISONS RETAIL MARKET SUBMARKET TOTAL INVENTORY SF DIRECT VACANT SF TOTAL VACANT SF DIRECT SUBLEASE RATE CURRENT QUARTER AVERAGE ASKING RENTAL RATE SUBMARKETS TOTAL AIRPORT 295,784 39,746 39, % 0.0% 13.4% $1.35 KIETZKE 1,380, , , % 0.0% 15.4% $0.91 MEADOWOOD 3,269, , , % 1.2% 15.6% $1.15 NORTH VALLEYS 774,871 48,753 48, % 0.0% 6.3% $1.35 NORTHEAST RENO 256,596 52,646 52, % 0.0% 20.5% $1.06 NORTHEAST SPARKS 2,153, , , % 0.0% 18.9% $1.40 NW RENO 1,601, , , % 0.0% 17.6% $1.38 PARK LANE 1,298, , , % 0.0% 29.2% $1.03 RENO REDEV 600, , , % 2.7% 25.3% $1.55 S RENO 2,394, , , % 0.2% 7.7% $1.57 S VIRGINIA 511,893 48,458 48, % 0.0% 9.5% $1.16 SW RENO 417,569 37,797 37, % 0.0% 9.1% $1.35 SPANISH SPRINGS 1,701, , , % 0.0% 15.1% $1.22 SPARKS INDUSTRIAL 119,875 11,224 11, % 0.0% 9.4% $1.76 SPARKS REDEV 132,832 5,000 5, % 0.0% 3.8% $1.00 W SPARKS 1,636, , , % 0.0% 23.3% $1.32 Total 18,544,715 2,946,420 3,007, % 0.3% 16.2% $1.29 QUARTERLY COMPARISON AND TOTALS Q ,544,715 2,946,420 3,007, % 0.3% 16.2% $1.29 Q2-2012* 18,325,567 2,766,762 2,846, % 0.4% 15.5% $1.27 Q ,644,571 2,364,969 2,489, % 0.79% 15.91% $1.35 Q ,625,307 2,301,760 2,426, % 0.80% 15.53% $1.35 Q ,625,307 2,410,099 2,591, % 1.05% 16.59% $1.37 * Switched to CoStar s raw data, which was then manipulated to match historical Colliers Retail statistical specifications. Continued from page 5 and shipping/postal services. Housing related retailers such as home goods, do-it-yourself home improvement stores and furniture are expected to recover in 2014, if our housing market returns. NEW CONSTRUCTION It has been a tough few years for new construction in the Reno market. In 2013, most new construction will be driven by Wal-Mart with a new supercenter in Legends as well as the possible roll-out of their 42,000 square foot Neighborhood Market. RETAIL TRENDS TO WATCH Retail expansion will continue to be driven by two major trends. First, the negative and long-term impact of e-commerce on brick and mortar stores with e-commerce comprising 10 perent of all retail sales according to Retailing Today is expected to build on the momentum of the past year and continue to grow in the future. Second, the bifurcation caused by the middle class consumer continues to squeeze the mid-pricepoint retailers as luxury and discount prevail. As a result, look for smaller store footprints (especially in big boxes) as almost every retailer is rolling out smaller stores today and trimming real estate needs as well as more entertainment, restaurants and service. In addition, the schism between Class A and Class C properties will continue to widen. Anchored shopping centers in strong locations are holding their own and in some cases, posting rent gains while Class C centers even if just a few blocks away, continue to struggle with elevated vacancies and falling rents. TRADITIONAL SUPERMARKET SQUEEZED With Tesco s recent announcement that their Fresh & Easy concept failed in the U.S., their real estate will be on the block, including four locations here. It is unknown right now what they will do. Wal-Mart remains a game changer in the industry with plans to build two supercenters in the Reno market. This will bring the total number of Wal- Mart s to eleven, in Reno, Sparks, Carson/Minden and Fernley/Fallon. Their plans also include rolling out their 40,000 square foot Neighborhood Market with rumors that they have already secured four or five locations. The expansion of Grocery Outlet and perhaps Sprouts, coupled with the aggressive expansion of new dollar concepts and increased food offerings in drug stores, the pieces of the grocery pie are getting smaller. RETAIL INVESTMENT OUTLOOK The majority of retail investment sales in 2012 were distressed and we see that continuing into this year. With fewer trophy properties available in the major cities, deal activity has turned to tertiary markets and properties in the middle, which could be good news for our region. However, there remains no appetite for challenged properties that are not priced as distressed FORECAST Although retail activity has picked up, the leasing environment in Reno/ Sparks remains extremely competitive. By the looks of it, it seems that we are dealing with many of the same issues that we faced in The good news is that unemployment is down, the housing market appears to be improving and there is increased leasing activity. The single most important factor for retail is housing and with a rebound on the horizon, we should see slow growth, decreased vacancies and an upturn in rents. P. 6 COLLIERS INTERNATIONAL - RENO
7 2012 YEAR END REVIEW AND 2013 FORECAST RETAIL YTD 2012 RETAIL AT GLANCE Total Inventory SF 18,544,715 SF Overall Vacancy(%) 16.2% Monthly Average Asking Rents $1.29 BOX SPACE AVAILABLE FORMER OCCUPANT SIZE SHOPPING CENTER Lowe s 177,809 SF Oddie Blvd Wal-Mart 125,405 SF North Towne Target 106,785 SF Iron Horse Mervyn s 79,000 SF Sierra Town Center Former Smith s 68,972 SF Sierra Marketplace Original Mervyns 67,769 SF Kietzke Center Safeway 55,269 SF Firecreek Safeway 46,850 SF Carson City Circuit City 45,524 SF Firecreek 100 N Sierra 42,000 SF Downtown Reno Sports Authority 40,149 SF Sparks Galleria Petsmart 34,690 SF Airport Square Sierra Trading Company 31,527 SF Sierra Town Center Whole Foods Sublease 28,788 SF Redfield Promenade Sax Off Fifth 28,368 SF Legends Borders 25,000 SF Redfield Promenade Circuit City 20,304 SF Sparks Galleria Shoe Pavilion 20,182 SF Sparks Crossing Office Max 20,059 SF Sparks Crossing Old Navy 16,920 SF Sparks Crossing CVS 16,913 SF Pioneer Meadows CVS 16,835 SF Sparks Galleria CVS 16,400 SF Riverboat-Downtown Reno Factory to U 14,275 SF McCarran Plaza Old Navy 14,000 SF Firecreek 512 offices in 61 countries on 6 continents United States: 125 Canada: 38 Latin America: 18 Asia Pacific: 214 EMEA: 117 > $1.5 billion in annual revenue > 979 billion square feet under management > Over 12,000 professionals COLLIERS INTERNATIONAL I RENO 100 W. Liberty St. Suite 740 Reno, Nevada, USA TEL FAX MANAGING PARTNER Tim Ruffin Managing Partner tim.ruffin@colliers.com TEL RESEARCHER Katina Parco Operations Manager katina.parco@colliers.com TEL CONTRIBUTING AUTHOR: Roxanne Stevenson Retail Group roxanne.stevenson@colliers.com TEL This report and other research materials may be found on our website at This quarterly report is a research document of Colliers International Reno NV. Questions related to information herein should be directed to the Research Department at Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Accelerating success. COLLIERS INTERNATIONAL - RENO P. 7
8 YEAR END REVIEW INDUSTRIAL RENO NEVADA RESEARCH & FORECAST REPORT Industrial Market Review 2012 SLIDES BY 2012 proved to be little more than a year of slow and uneventful market recovery. With a negative net absorption in the first quarter, three consecutive quarters of light but positive absorption ended 2012 with a positive 612,000 square feet of net absorption. A lack of large deals kept net absorption down but the market did experience steady gross absorption for a total of just over 4 million square feet. MARKET INDICATORS Q4-12 NET ABSORPTION CONSTRUCTION RENTAL RATE Projected Q1-13 Vacancy continues to approach a healthier level. The overall vacancy rate in Reno/Sparks is 13.8 percent, which is about three percentage points higher than the national average. Throughout the year we saw vacancy remain stable with various submarkets holding stronger than others as the South Reno submarket showed the highest occupancy rate and the Sparks submarket struggled at the end of the year with the lowest occupancy rate. As vacancy dropped lease rates remained stable but vary greatly by location, age, size and functionality. New construction was paralyzed by a lack of new users or demand for build-to-suit projects. Despite land pricing below $3.00 PSF, construction costs are up and lease rates are still too low to justify new development in most cases. Although supply in dwindling, there are still too many existing options to motivate developers to produce new product. On a positive note, rumor has it we could see the first new speculative building in years very soon. The majority of deals done in this market were between 5,000 and 75,000 square feet. There were five deals over 100,000 square feet (chart below). A few transactions of note were the 1.9 million square feet that was split off from the Prologis portfolio and is now controlled by Pacific Life, and Turner Investments purchase of 107,370 square feet to reposition, stabilize and hold 4690 Longley Lane. HISTORICAL AND ASKING RATES 20.0% $0.50 Rental rates remain relatively flat at $0.34 PSF NNN. 15.0% $ % $ % $ % 1Q Q Q Q Q Q Q Q 2012 $0.10 Vacancy Rate Asking Rental Rate
9 2012 YEAR END REVIEW AND 2013 FORECAST 395 North Valleys Pyramid Highway CONTINUED GROWTH OF E-COMMERCE Online fulfillment and e-commerce remain an emerging force in driving industrial demand across the nation. As online purchasing strengthens in popularity the need for fulfillment grows, to satisfy the $42.3 billion in orders in 2012, translating to a 14 percent increase from to the regional economic development agencies, there is a significant amount of tech and data users with Reno/Sparks on their short list. The question then becomes does it make more sense to retrofit existing buildings or build from the ground up. In either case, the possibility of any new projects getting under way will hinge solely on the amount of end-users ready to pull the trigger and commit to this area. 80 Central/West Reno Airport 395 Sparks 80 I-80 East Corridor South Reno THE (DATA) CLOUD OVER NORTHERN NEVADA Data Centers have become the new buzz word in Northern Nevada with the announcement of the new Apple facilities. Once a major power house such as Apple gives its blessing to an area then competitive, complimentary and ancillary tech users are sure to follow. According ESCAPE FROM CALIFORNIA A migration of Californians escaping the new cap and trade regulations and Proposition 30 taxes are making their presence felt. Not only will the new taxations drive businesses out but the inability to expand or modify existing structures due to extremely tight building regulations have all the secondary markets jockeying for position. NET ABSORPTION (SQUARE FEET) 600, , ,000 - (200,000) (400,000) (600,000) 1Q Q Q Q 2011 Net Absorption 1Q Q Q 2012 New Completions 4Q 2012 SIGNIFICANT LEASE AND SALES ACTIVITY LEASE ACTIVITY PROPERTY ADDRESS LEASE DATE SIZE SF TENANT TYPE 6650 Echo Avenue Reno, NV Q ,500 BizChair New Lease 725 Waltham Way Reno, NV Q ,000 Jacobsen Logistics New Lease 201 Ireland Drive Reno, NV Q ,200 Pittsburgh Paint New Lease 1025 Sandhill Road Reno, NV Q ,044 Sanofi Pasteur New Lease 1170 Trademark Drive Reno, NV Q ,375 Torchmate New Lease SALES ACTIVITY PROPERTY ADDRESS SALES DATE SIZE SF BUYER TYPE 2080 Greg Street Reno, NV April, ,200 Dynamic Diesel Manufacturing 7900 Sugar Pine Court Reno, NV May ,319 Gurnea Family Trust Warehouse 755 Trademark Drive Reno, NV May, ,500 Hope Community Warehouse COLLIERS INTERNATIONAL - RENO P. 9
10 2012 YEAR END REVIEW AND 2013 FORECAST INDUSTRIAL MARKET COMPARISONS INDUSTRIAL MARKET TYPE TOTAL INVENTORY SF DIRECT VACANT SF DIRECT RATE SUBLEASE VACANT SF SUBLEASE RATE TOTAL VACANT SF RATE TOTAL NET ABSORPTION CURRENT SF NET ABSORPTION YTD SF COMPLETIONS CURRENT QTR SF UNDER CONSTRUCTION SF WEIGHTED AVG ASKING RENTAL RATE AIRPORT SUBMARKET FLEX 216,925 20, % , % 5, $0.87 INDUSTRIAL 3,288, , % , % (13,058) 38,733 $0.65 WHSE/DIST 5,711, , % , % 121,475 94, $0.40 Total 9,216,653 1,189, % - - 1,189, % 113, , $0.52 CENTRAL & WEST RENO FLEX 634,934 33, % , % 7,430 9,230 $0.52 INDUSTRIAL 1,486, , % , % 29,385 47,760 $0.38 WHSE/DIST 1,443, , % , % 5,050 (61,444) - $0.22 Total 3,565, , % , % 41,865 (4,454) - - $0.32 NORTH VALLEYS FLEX 435,927 32, % , % (7,528) (375) $0.41 INDUSTRIAL 1,379, , % , % 11,700 (71,097) $0.36 WHSE/DIST 14,279,957 1,991, % - - 1,991, % 12, ,082 - $0.23 Total 16,095,739 2,218, % - - 2,218, % 16,172 99, $0.25 SOUTH RENO FLEX 153,597 23, % , % 6,496 (5,604) $0.55 INDUSTRIAL 2,010, , % , % 6,765 (1,979) $0.65 WHSE/DIST 7,836, , % , % (76,820) (282,680) $0.48 Total 10,000,745 1,009, % - - 1,009, % (63,559) (290,263) - - $0.58 SPARKS FLEX 1,244,134 98, % , % 14,356 6,678 $0.69 INDUSTRIAL 6,511, , % , % 18, ,019 $0.44 WHSE/DIST 19,526,133 3,338, % - - 3,338, % 14, ,523 $0.27 Total 27,281,951 4,356, % - - 4,356, % 47, , $0.31 I-80 EAST CORRIDOR FLEX 110,121 7, % - - 7, % 7,000 9,500 INDUSTRIAL 815, , % , % 25,379 48,521 $0.45 WHSE/DIST 11,376,242 1,368, % - - 1,368, % (15,000) 132,100 $0.29 Total 12,297,228 1,524, % - - 1,524, % 17, , $0.37 MARKET TOTAL FLEX 2,795, , % , % 33,164 19,733 $0.61 INDUSTRIAL 15,492,856 2,145, % - - 2,145, % 78, ,957 $0.51 WHSE/DIST 60,169,345 8,431, % - - 8,431, % 61, ,310 $0.28 TOTAL 78,457,839 10,792, % ,792, % 173, , $0.34 QUARTERLY COMPARISON AND TOTALS Q ,457,839 10,792, % ,792, % 173, , $0.34 Q ,595,888 9,399, % 1,330, % 10,729, % (574,189) (574,189) $0.36 Q ,595,888 9,824, % 1,330, % 11,155, % (474,515) (474,515) - - $0.36 Q ,995,188 9,685, % 1,148, % 10,833, % 212,854 1,174, $0.36 Q ,995,188 9,138, % 1,191, % 11,039, % 284, , $0.39 Q ,995,188 9,322, % 1,058, % 11,190, % 160, , $0.39 Q ,995,188 9,428, % 1,209, % 11,240, % 156, , $0.37 Q ,995,188 9,762, % 1,286, % 11,691, % 182, , $0.38 Q ,995,188 9,944, % 1,257, % 11,876, % 162, , $0.38 P. 10 COLLIERS INTERNATIONAL - RENO
11 2012 YEAR END REVIEW AND 2013 FORECAST INDUSTRIAL Of the California secondary markets, Nevada is very competitive with tax abatement programs, energy pricing and development potential. Between the tax advantages, a preponderance of affordable labor, ease of access to major transportation hubs, and proximity to all major western markets Reno/Sparks will be a force to be reckoned with in years to come. Northern Nevada may be in a particularly good position to capitalize on relocating manufacturers, as they generally do not have the same clear height or ESFR sprinkler requirements as distribution warehouses. Many vacant spaces in our market lack this newer technology and as such, do not meet the needs of most distribution tenants. Manufacturing tenants, however, could look at these buildings as an opportunity to acquire what is highly functional property for their purposes at relatively low costs. Most of the West Coast has seen a boom in industrial demand, but it has yet to be seen what effect the finishing of the Panama Canal will have on its ports and the ripple effect on the industrial market. FORECAST We believe that the market will continue to emerge throughout 2013 with net absorption remaining positive, rents stabilizing with slight upward momentum, and vacancy rates continuing to decline. Tenants beware: landlord concessions will get harder to come by as the market improves. If Reno/Sparks is able to attract and secure new specialty users we will begin to see new construction. 522 offices in 62 countries on 6 continents United States: 147 Canada: 37 Latin America: 19 Asia Pacific: 201 EMEA: 118 > $1.8 billion in annual revenue > 1.25 billion square feet under management > Over 12,300 professionals COLLIERS INTERNATIONAL I RENO 100 W. Liberty St. Suite 740 Reno, Nevada, TEL FAX MANAGING PARTNER Tim Ruffin Managing Partner tim.ruffin@colliers.com TEL RESEARCHER Katina Parco Listings Coordinator katina.parco@colliers.com TEL CONTRIBUTING AUTHOR Adam Wexelblatt Senior Associate adam.wexelblatt@colliers.com TEL This report and other research materials may be found on our website at This quarterly report is a research document of Colliers International Reno, NV. Questions related to information herein should be directed to the Research Department at Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Accelerating success. COLLIERS INTERNATIONAL - RENO P. 11
12 YEAR END REPORT OFFICE RENO NEVADA RESEARCH & FORECAST REPORT Office Market Review OVERVIEW The market finished almost exactly where we forecasted in the third quarter. The vacancy rate ended the year at 16.7 percent down from 17.0 percent in the third quarter. The total net absorption finished at 109,581 square feet. This is a very respectable number based upon the number of jobs in the Truckee Meadows. This absorption rate indicates a 1.8 percent growth rate in office jobs. This is probably in line with the diversification of our economy away from gaming and construction. MARKET INDICATORS Q4-12 NET ABSORPTION CONSTRUCTION RENTAL RATE Projected Q4-13 The activity was spread throughout the market. We had new tenants in the Central / Airport, Downtown, Meadowood, and South Meadows submarkets. One Contact opened a new call center on Financial Boulevard. Gordon Silver opened their northern Nevada office in Museum Tower. Video Gaming Technology opened an office in the NevDex project. Blackhawk Network leased space in the Alere Medical building for a new call center. NJVC re-opened the closed Oracle data center in the Reno Tahoe Tech Center. Relocating tenants included Progressive Insurance, Associa, and Keller Williams moving from Meadowood to the Northern Nevada Corporate Center in South Meadows. Downey Brand and Colliers International moved Downtown into the Museum Tower. In reverse, Wells Fargo Advisors left Downtown for the Lakeridge Centre in Meadowood. The only two completed office build-to-suits were both in South Meadows an 8,000 square foot building for Remax and a 6,000 square foot building for a pain doctor. Larger renewing tenants included The Hartford, Doctor s XL, and Gradient Resources all in South Meadows. In Meadowood, Wells Fargo renewed their Northern Nevada corporate office on Kietzke Lane. None of these tenants downsized in their renewals. This is a significant reversal from two years ago when most of the renewing tenants downsized. Looking forward, we expect the market to remain steady and positive, similar to There will be a few new larger office tenants to the market and perhaps some downsizing. We expect absorption to stay positive in the 100,000 square foot range and the overall vacancy rate to continue to go down. First quarter HISTORICAL AND ASKING RATES 25.0% 20.0% $1.70 $1.60 Lease rates have edged slightly lower as landlords compete for tenants. 15.0% $ % $ % $ % 1Q Q Q Q Q Q Q Q2012 $1.20 *Source: Colliers Vacancy Rate Asking Rental Rate
13 2012 YEAR END REVIEW AND 2013 FORECAST WEST RENO DOWNTOWN CENTRAL / AIRPORT MEADOWOOD SPARKS SOUTH MEADOWS 395 Pyramid Highway 80 construction will consist primarily of build-to-suit projects, with 18,000 square foot and 4,000 square foot buildings currently under construction. Lease rates should remain steady going forward. RATES As mentioned above, the overall vacancy rate declined to 16.7 percent. The best performing submarket was Meadowood with a vacancy rate of 10 percent down from 10.4 percent in the third quarter. This would normally indicate a balanced market with potential for new construction. However, with Downtown showing a 19.5 percent vacancy rate and South Meadows showing a 17.6 percent vacancy rate, we do not expect to see construction any time soon. LEASE RATES The rate in South Meadows seemed to be under the most pressure as landlords battled for active tenants in the market. Concessions in the form of turnkey improvement and free rent were prevalent in most transactions. Downtown was also under pressure to land the few tenants in the market. We expect these conditions to continue into 2013, with a lack of new tenants to the market. Rents will likely not increase for the next year. ABSORPTION The 109,581 square feet of net absorption is the best the market has done since This is also considered healthy based upon the number of jobs in the market. The two strongest submarkets were Downtown and Central/Airport with about 40,000 square feet of positive net absorption. We expect South Meadows to show the greatest absorption in This submarket continues to struggle with the return of office space related to residential construction. Most of this bleeding should have ended in NET ABSORPTION COMPARISON 100,000 80,000 60,000 40,000 20,000 - (20,000) (40,000) (60,000) 1Q Q Q Q Q Q Q Q2012 Net Absorption New Completions *Source: CoStar & Colliers International SIGNIFICANT LEASE AND SALE ACTIVITY LEASE ACTIVITY PROPERTY ADDRESS LEASE DATE SIZE TENANT TYPE 5340 Kietzke Lane, Reno NV Dec ,400 SF Wells Fargo Renewal 9850 Double R Boulevard., Reno NV Dec ,856 SF The Hartford Insurance Renewal 300 E. 2nd Street., Reno NV Oct ,974 SF 3G Studios Inc. Expansion 9670 Gateway Drive, Reno NV Oct ,200 SF Gradient Resources Renewal Professional Circle, Reno NV Nov ,715 SF Keller Williams New Lease SALES ACTIVITY PROPERTY ADDRESS SALES DATE SIZE BUYER SALE PRICE 1170 S. Rock Boulevard, Reno, NV Dec ,240 SF Daniel Jacuzzi $2,512, Sullivan Lane, Reno, NV Dec ,432 SF Sridhar Real Estate $200, Reno Corporate, Reno, NV Nov ,970 SF Sigstad Trust $735, Plumas Street, Reno, NV Nov ,222 SF Rope LLC $719,181 COLLIERS INTERNATIONAL - RENO P. 13
14 2012 YEAR END REVIEW AND 2013 FORECAST OFFICE MARKET COMPARISONS OFFICE MARKET TYPE BLDGS TOTAL INVENTORY SF DIRECT VACANT SF DIRECT RATE SUBLEASE VACANT SF SUBLEASE RATE TOTAL VACANT SF RATE CURRENT QUARTER RATE PRIOR QUARTER NET ABSORPTION CURRENT QTR SF NET ABSORPTION YTD SF COMPLETIONS CURRENT QTR SF UNDER AVG ASKING RENTAL RATE SOUTH MEADOWS A 34 1,207, , % 21, % 244, % 20.4% 18,487 24, $1.57 B ,410 17, % , % 6.2% 176 (6,708) - - $1.20 C % % 0.0% Total 44 1,493, , % 21, % 262, % 17.7% 18,663 17, $1.41 MEADOWOOD A 36 1,682, , % , % 11.1% 13,163 3, $1.64 B ,989 34, % - 0.0% 34, % 8.1% , $1.29 C % % 0.0% Total 55 2,119, , % % 212, % 10.4% 14,087 14, $1.47 CENTRAL / AIRPORT A 3 81,023 6, % - - 6, % 21.0% 2,986 6, $1.20 B , , % , % 21.7% , $1.21 C , , % , % 24.3% 2,583 9, $1.03 Total 70 1,738, , % , % 22.6% 6,079 40, $1.12 SPARKS A B 2 32, $0.75 C 1 14,432 10, % , % 72.4% $0.65 Total 3 47,351 10, % % 10, % 22.1% $0.70 WEST RENO A 1 17,728 8, % - - 8, % 50.2% - (1,251) - - $1.10 B 3 43, , $1.35 C 5 87,390 10, % , % 11.7% - (8,223) - - $1.31 Total 9 148,220 19, % , % 12.9% - (4,174) - - $1.25 SUBURBAN TOTAL A 74 2,989, , % 21, % 437, % 19.5% 34,636 33, $1.10 B 62 1,714, , % - 0.0% 250, % 19.1% 1,610 33, $1.16 C , , % , % 11.3% 2,583 1, $1.00 Total 181 5,547, , % 21, % 887, % 16.4% 38,829 68, $1.09 DOWNTOWN A 4 557,635 97, % 2, % 100, % 20.9% 15,817 41,375 - A 316,076 B , , % , % 20.2% 6,909 13, $1.60 C ,059 54, % , % 18.6% - (13,374) - - $1.37 Total 35 1,388, , % 2, % 270, % 18.4% 22,726 41, $105, MARKET TOTAL A 78 3,547, , % 24, % 538, % 19.4% 50,453 46, $1.54 B 78 2,243, , % - 0.0% 350, % 18.0% 8,519 39, $1.38 C 60 1,144, , % , % 12.8% 2,583 (6,337) - - $1.18 Total 216 6,935,429 1,116, % 24, % 1,141, % 17.0% 61, , $1.37 QUARTERLY COMPARISON AND TOTALS Q ,935,429 1,116, % 24, % 1,141, % 17.0% 61, , $1.37 Q ,924,552 1,074, % 103, % 1,177, % 17.6% 58,313 79, $1.23 Q ,819,998 1,092, % 100, % 1,193, % 17.6% 9,146 21, $1.34 Q ,819,998 1,097, % 105, % 1,203, % 19.7% 12,383 12,383 5,436 $1.34 Q ,887,698 1,263, % 93, % 1,357, % 19.1% (72,413) (51,270) - - $1.54 Q ,871,000 1,190, % 121, % 1,312, % 19.4% 21,143 41, $1.59 *Source: CoStar & Colliers International P. 14 COLLIERS INTERNATIONAL - RENO
15 2012 YEAR END REVIEW AND 2013 FORECAST GARDEN OFFICE, SALES AND MEDICAL 2012 marked the first year since the height of the market, that we saw a larger number of office buildings over 10,000 square feet sell. There were twelve transactions compared to only four in We believe this is the result of two factors. First, for users, the cost to purchase and rehab is much lower than new construction. Earlier this year Renown purchased a 39,000 square foot building at 1285 Financial Boulevard the former Intuit building for their call center. The second factor is tied to the difficulty of buying investments in primary markets due to limited availability and high prices. As a result they are looking to tertiary markets such as Reno. The Massie Family Trust was active in 2012 buying the GI Consultants building in South Meadows on a sale leaseback. The 17,000 square foot property sold for $311 PSF - the highest in In addition, local investors surfaced towards the end of the year with two larger sales Rock Boulevard, a 32,000 square foot Wells Fargo REO, half occupied by Southern Wine and Spirits, sold for approximately $78 PSF S. Virginia a 31,000 square foot office building, commonly referred to as the Bank of America Building in the Meadowood Submarket, sold for $52 PSF and was approximately 50 percent occupied. Medical users stayed relatively active despite the impending outcome of Obamacare. There were a number of non-hospital medical users either leasing or buying in the Meadowood Submarket. Sierra Nevada Nephrology leased 7,200 square feet at 670 Sierra Rose, and an Oncology Group purchased a 10,222 square foot building at 6130 Plumas. This was a general office building and they plan to remodel it for medical use. There are a handful of other medical groups looking in the Meadow submarket. Construction was nominal in 2012, with a total of 12,000 square feet in two buildings both in Tanamera s Reno Tahoe Tech Center Town Center in South Meadows. Both were build-to-suits. There is one additional building under construction in this area with this business park nearly built-out. There are still sites in the Reno Professional Campus off Longley Lane and Reno Corporate Drive. We anticipate this will be the next project to be built-out. We continue to see owner-users purchase small buildings as the SBA rate is the lowest ever at 4.01 percent. This, coupled with below replacement cost sales prices, makes it a great purchase opportunity for owner-users. Percentage Rate 4Q 2012 SBA 504 LOAN RATE: 2005 TO PRESENT 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% August- 05 November- 05 February- 06 May- 06 August- 06 November- 06 February- 07 May- 07 August- 07 November- 07 February- 08 May- 08 August- 08 November- 08 February- 09 May- 09 August- 09 Month/Year November- 09 February- 10 May- 10 August- 10 November- 10 *Courtesy of Tim Ruffin/Melissa Molyneaux - Colliers International February- 11 May- 11 August- 11 November- 11 February- 12 May- 12 August- 12 November offices in 62 countries on 6 continents United States: 147 Canada: 37 Latin America: 19 Asia Pacific: 201 EMEA: 118 > $1.8 billion in annual revenue > 1.25 billion square feet under management > Over 12,300 professionals COLLIERS INTERNATIONAL I RENO 100 W. Liberty St. Ste. 740 Reno, Nevada, USA TEL FAX MANAGING PARTNER Tim Ruffin, SIOR Managing Partner tim.ruffin@colliers.com TEL RESEARCHER Katina Parco Listings Coordinator katina.parco@colliers.com TEL CONTRIBUTING AUTHOR Melissa Molyneaux Vice President melissa.molyenaux@colliers.com TEL This report and other research materials may be found on our website at This quarterly report is a research document of Colliers International Reno, NV. Questions related to information herein should be directed to the Research Department at Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Accelerating success. COLLIERS INTERNATIONAL - RENO P. 15
16 January 17, Commercial Real Estate Forecast Peppermill Hotel Casino - The Capri Room, Reno, NV 100 W. Liberty St. Suite 740 Reno, NV tel fax
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