Research & Forecast Report RENO INDUSTRIAL Q1 2018 Oh Midsize Spaces, Where Art Thou? > > Vacancy decreased to 5.38% > > 919,515 square feet of Gross Absorption > > Industrial land is becoming the next Gold Rush Market Indicators Unemployment Rate Nevada 10-Year Nominal Interest Rate National Consumer Confidence Rental rates in the first quarter of 2018 held steady in the midst of lower vacancies, lack of midsized product, low tenant turnover, and bullish landlords. A midsize, multi-tenant project provides for spaces between 20,000 to 50,000 square feet. While activity slowed slightly during and after the holidays, negotiations ramped up toward the end of the quarter and are predicted to continue into the second quarter. However, there may be some relief on the horizon with new product coming on market at the end of the year in that size range. Absorption Gross absorption ended at 919,515 square feet while net absorption for the quarter posted at 274,587 square feet. These numbers are fairly typical compared with previous first quarters for the Northern Nevada industrial market, but on the lower end of the scale. 4.9% Market Indicators 2.73 127.7 Relative to prior period Q1 2018 Q2 2018* Vacancy Net Absorption Completions Rental Rate *Projected Summary Statistics Historical Vacancy Rates and Asking Lease Rates Q1 2018 Reno Market Previous Current Vacancy Rate 5.51% 5.38% Asking Rent (PSF) $0.39 $0.39 Net Absorption (SF) 1,264,402 274,857 Overall Asking Rents Per Square Foot Previous Current Warehouse $0.35 $0.35 Distribution $0.36 $0.36 Flex $0.67 $0.68 While specific subtypes are increasing in lease rates due to lack of inventory, the overall asking rate remains steady.
There were thirty-six total transactions in the first quarter with an average deal size of 25,580 square feet. The bulk of the tenants were distribution, followed by service and manufacturing users, respectively. Of the thirty-six transactions, only two were over 150,000 square feet. Tenant s looking for spaces of 100,000 square feet or more will find several good options, while spaces 300,000 square feet or larger are very limited. There is a real void for quality spaces between 10,000 to 50,000 square feet which is a size range the industrial market has needed for several quarters. Historical Net Absorption vs. New Completions Vacancy The past five consecutive quarters have posted a decreased vacancy rate, including Q1 2018. The quarter ended with a total vacancy of 5.38 percent, which is down from 5.51 percent the previous quarter. This includes both direct and sublease vacancy. If we discount the sublease space available on the market, the direct vacancy is 4.35 percent. Undoubtedly, a landlord s market. Net Absorption New Completions There are a number of reasons for the low level of vacancy, including the renewing of existing spaces. Most tenants are choosing to stay in their current spaces, making it hard for inventory to come on the market. If a space does turn over, there are prospective tenants competing to backfill the vacancy. There are several instances where spaces are pre-leased prior to an existing tenant physically vacating their space. There is no new midsize projects under construction and activity continues to be healthy. Historical Gross Absorption vs. Net Absorption Industrial Construction Construction took a little bit of a breather this quarter with only one completion of a 174,493 square foot building at 870 Trademark Drive for Elite Spice. Other developers are moving forward with various projects. Panattoni, Dermody Properties, and Scannell are working on a number of projects that include three speculative developments and two build-tosuits, totaling approximately 2,000,000 square feet. All of these projects should be completed by the end of 2018. Land Purchases There are several national developers looking to establish a presence in the market. Some have done so for build-to-suit tenants while others are seeking land opportunities for speculative development. Given the level of growth compiled with existing developers controlling developable land sites, there is very little product available. Most existing sites with good locations come with some challenges. Those challenges can include zoning, building area limitations, grading, and infrastructure. Those developers with the wherewithal and patience will be rewarded for their efforts. Panattoni closed on roughly 12.6 acres off Longley Lane for their 271,000 square foot flex project with an anticipated completion date at the end of 2018. Gross Absorption Historical Vacancy Net Absorption 2 Reno Research & Forecast Report Q1 2018 Industrial Colliers International
Fernley is finally seeing some activity with Sonterra Development proposing a zone change on 643 acres in the Crossroads Commerce Center. Given the lack of availability for land, including fewer large land plays in the Tahoe Reno Industrial Center, Fernley should start to see increased activity. Significant Sale Activity 550 Spice Island Drive 184,878 SF - $10,500,000 $56.79 PSF Lease Rates As a result of the low vacancy, we are experiencing an increase in rental rates in specific subtypes. Tenants coming up on renewals from leases signed sixty months prior can expect renewal proposals with twelve to sixteen percent base rent increases. Tenants are seeking alternatives within the market with very few options available in the hopes of a better rate, but seeing little success. While the rates in certain subtypes are increases, the average rental rate still remains at $0.39. As rental rates increase, this is opening the door for developers to consider building smaller midsize and flex type product. This product over the past several years has been overlooked, not because of the lack of interest, but due to the cost to build. Rental rates are nearing the point where flex product is beginning to pencil. For example, Panattoni Development recently completed and leased two midsize buildings in the South Meadows submarket. In addition, they are currently marketing a 271,000 square foot flex project south of the Reno-Tahoe airport. This project will provide for spaces between 8,000 to 49,000 square feet, a category that up until recently was cost prohibitive. Industrial Investment There were no significant portfolio sales this quarter, however there should be at least one reported in the second quarter. Notable investment sales included the purchase of the 174,878 square foot building at 550 Spice Islands Drive sold to NI Ventures for $10,500,000 and Cook Family Trust purchased the 24,500 square foot building at 397 Greg Street for $1,890,000. Finally, Patricia O Toole purchased 9,036 square feet at 8587 White Fir Street for $1,170,000. 1455 Glendale Avenue 16,363 SF - $5,800,000 $354.46 PSF 7950 Sugar Pine Court 18,970 SF - $2,000,000 $105.43 PSF Owner-User Purchases There was one owner-user sale in the first quarter at 7950 Sugar Pine Court. Patagonia purchased the 18,970 square foot building for $2,000,000. Overview 2018 is looking to be a very positive year, especially on the landlord side. For users looking for larger space in the 100,000+ square foot range, there will be some good options. Less than 100,000 square feet will be more difficult to find. The market will be a bit more accommodating for users in the 50,000 square foot size range, but be prepared to move quickly as those spaces will be spoken for. As a user, if you find a space that works for your business, be prepared to move quickly and settle for close to the asking price with little give from the landlord. 3 Reno Research & Forecast Report Q1 2018 Industrial Colliers International
Significant Sale Activity Map 395 NORTH VALLEYS 1455 Glendale Avenue Sparks, NV 16,363 SF - $5,800,000 $354.46 PSF 397 Greg Street Sparks, NV SPARKS 24,500 SF - $1,890,000 $77.14 PSF 80 80 CENTRAL/WEST RENO AIRPORT I-80 EAST CORRIDOR 550 Spice Islands Drive Reno, NV 184,878 SF - $10,500,000 $56.79 PSF 7950 Sugar Pine Ct Reno, NV 18,970 SF - $2,000,000 $105.43 PSF SOUTH RENO 395 Q1 2018 Significant Lease Activity PROPERTY ADDRESS SIZE TENANT TYPE 9460 N. Virginia Street, Suite B 190,871 The Boys Nevada, LLC Distribution 870 Trademark Drive 174,493 Elite Spice Manufacturing 1450 E. Greg Street, #107 65,088 Bridgestone Hosepower Distribution 855 Sandhill Road, Suite D 38,576 Dal-Tile Service 9250 Red Rock Road 33,750 Crystal Creek Distribution 4 Reno Research & Forecast Report Q1 2018 Industrial Colliers International
Market Comparisons - Reno INDUSTRIAL MARKET TYPE BLDG TOTAL INVENTORY DIRECT VACANT SF DIRECT VACANCY RATE SUBLEASE VACANT SF SUB VACANCY RATE TOTAL VACANT SF VACANCY RATE TOTAL NET ABSORPTION CURRENT QTR NET ABSORPTION YTD COMPLETIONS SF UNDER CONSTRUCTION SF ASKING RENT AIRPORT SUBMARKET Total 141 8,958,038 432,016 4.8% 438,000 4.9% 870,016 9.71% (550,504) (550,504) - - $0.39 CENTRAL & WEST RENO Total 465 1,727,477 151,330 8.8% - 0.0% 151,330 8.76% 73,587 73,587 - - $0.40 NORTH VALLEYS Total 250 18,656,233 472,505 2.5% 126,268 0.7% 598,773 3.21% 240,848 240,848-1,238,481 $0.35 SOUTH RENO Total 166 9,774,617 251,010 2.6% 137,405 1.4% 388,415 3.97% 130,046 130,046 174,493 - $0.40 SPARKS Total 166 28,716,251 2,032,922 7.1% 170,500 0.6% 2,203,422 7.67% (264,669) (264,669) - - $0.38 I-80 EAST CORRIDOR Total 185 17,713,384 380,697 2.1% 10,677 0.1% 391,374 2.21% 645,279 645,279-630,240 $0.35 MARKET TOTAL TOTAL 1,373 85,546,000 3,720,480 4.3% 882,850 1.0% 4,603,330 5.38% 274,587 274,587 174,493 1,868,721 $0.39 QUARTERLY COMPARISON AND TOTALS Q1-18 1,373 85,546,000 3,720,480 4.3% 882,850 1.0% 4,603,330 5.38% 274,587 274,587 174,493 1,868,721 $0.39 Q4-17 1,372 85,371,507 3,677,592 4.3% 1,025,832 1.2% 4,703,424 5.51% 1,264,402 3,714,429 552,957 - $0.39 Q3-17 1,370 84,818,550 4,383,284 5.2% 1,031,585 1.2% 5,414,869 6.38% 1,665,230 2,450,027 1,587,300 352,000 $0.38 Q2-17 1,364 83,231,250 6,061,411 7.3% 612,635 0.7% 6,674,046 8.02% 476,328 784,797 221,000 702,000 $0.38 Q1-17 1,363 83,010,250 4,931,434 5.9% 1,997,940 2.4% 6,929,374 8.35% 308,469 308,469-416,500 $0.38 2016-2018 Construction Activity DEVELOPER SITE TENANT SQUARE FEET LOCATION DELIVERY TYPE Scannell Properties Mustang Industrial Park Building 2 Vacant 564,000 East Sparks TBD BTS Panattoni Longley Commerce Center Vacant 270,975 South Reno Q4 2018 Spec McKenzie 843 Trademark Drive Elite Spice 170,000 South Reno Q3 2018 BTS Conco 245 E. Sydney Drive Vacant 630,240 TRIC Q3 2018 Spec Dermody Properties LogistiCenter at 395 Phase II Building 2 Vacant 436,368 North Valleys Q3 2018 Spec Panattoni North Valleys Commerce Center Phase II Vacant 802,113 North Valleys Q2 2018 Spec TBD Spanish Springs Walkenhorst 75,000 Spanish Springs Q4 2017 BTS Q&D Spanish Springs Clausen Coatings 125,000 Spanish Springs Q4 2017 BTS Panattoni North Valleys Commerce Center Building C Trademark Global 353,000 North Valleys Q4 2017 Spec Prologis Sage Point 5 NBF/ Turn 14 240,500 North Valleys Q3 2017 Spec Dermody Properties Logisticenter I-80 Phase 1 Vacant 181,093 West Reno Q3 2017 Spec Dermody Properties Logisticenter I-80 Phase 1 Patagonia 221,000 West Reno Q2 2017 Spec Montane / Tesla Tesla Building 4 Tesla Motors 30,000 TRIC Q2 2017 BTS F&P / Tesla Tesla Building 2 Tesla Motors 1,000,000 TRIC Q2 2017 BTS McKenzie Properties Golden Valley Fulfillment Center ID Tech Camps 61,875 North Valleys Q2 2017 Spec McKenzie Properties Golden Valley Fulfillment Center Vacant 84,996 North Valleys Q2 2017 Spec Panattoni Sandhill Commerce Center Building 2 Zazzle 180,792 South Reno Q4 2016 Spec Panattoni Sandhill Commerce Center Building 1 Elemental LED 209,000 South Reno Q4 2016 Spec Alston Construction 240 Nevada Pacific Parkway Deceunick North America 150,000 Fernley Q4 2016 BTS Scannell Properties Mustang Industrial Park Building 1 FedEx 343,000 East Sparks Q4 2016 BTS Panattoni North Valley Commerce Center Building 2 Mary's Gone Crackers 450,000 North Valleys Q3 2016 BTS Conco 345 Sydney Drive Jet.com 672,000 TRIC Q3 2016 Spec 5 Reno Research & Forecast Report Q1 2018 Industrial Colliers International
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