“The Reno/Sparks industrial market has realized unprecedented growth over the past several years. The region offers a favorable business climate especially for companies providing solid opportunities for employees. Reno/Sparks’ geographic location, which borders states with large populations, allows for distribution to 66 million people within a 24-hour drive time. We have seen a large emergence of e-commerce, distribution and manufacturing companies locating to Northern Nevada. When compared to neighboring states, operational costs in Nevada are among the lowest in the country. Companies such as Tesla, Apple, Google, Amazon.com and Rubbermaid, among many others, have chosen the Reno/Sparks area because it offers many advantages for businesses and their employees.” — Greg Shutt, SIOR, Vice President | Northern Nevada
Reno/Sparks is quickly becoming a major distribution hub in the west because of its central location and plethora of logistics advantages. All major western U.S. cities are within a 400- to 800-mile range of the region. Reno/Sparks offers a relatively dry and mild climate and products stored in this region are not subject to severe changes in weather and humidity. The climate helps provide cool, dry conditions for storing products, while the low humidity is excellent for box strength and promotes long carton life for packaging.
Interstate 80 runs though the region and leads to Highway Interstate 5 which offers access to the entire west coast. These major interstate highways reduce delivery time for the region’s truckload and package carriers. Each of these carrier types has the ability to service major metropolitan cities with overnight service at regular ground delivery rates. Additionally, the Reno-Tahoe International Airport supports 12 major airlines and has 310,000 pounds of cargo arriving daily. UPS, FedEx and DHL all fly in and out of the airport. Finally, the region has access to Union Pacific and Southern Pacific Railroads.
After peaking at nearly 16% in 2010, the Reno/Sparks industrial market has enjoyed steady year-over-year drops in overall vacancy. Vacancy rates continue to decline as new developments are being gobbled up by large users and small industrial space availabilities are at all-time lows. Today vacancy rates stand at 6.4%, its lowest in over a decade. Vacancy rates continue to dwindle in small industrial product, with 3% rate in buildings 10,000 square feet to 24,999 square feet and 4% in buildings 25,000 square feet to 49,999 square feet.
More than 2.4 million square feet have been absorbed so far in 2017, putting the region on pace for its eighth consecutive year of positive net absorption. The size ranges of which the majority of absorption are occurring in 2017 is noteworthy, as robust activity in product under 10,000 square feet has left only a handful of remaining options for tenants in that size range. Absorption continues to be pushed upward by large BTS completions, with Tesla moving into another 1,000,000 square feet this year.
The market saw several completions this quarter that resulted in over 1,550,000 square feet of new construction. Prologis installed the roof on their new 240,500-square-foot facility on Lear Boulevard in Stead. National Business Furniture has leased the first 80,000 square feet within the building, leaving approximately 160,000 square feet still available. Dermody’s second building at Logisticenter I-80 in Verdi was also added this quarter at 182,000 square feet.
On the build-to-suit side, Tesla’s second phase of the Gigafactory was added, bringing on one million square feet for the footprint of the building. Garlock Printing’s expansion of 74,800 square feet was added in West Reno, as well as a new building for MedMen at 30,000 square feet in Mustang.
One of the region’s biggest advantages is its plethora of available land. Some significant land sales occurred this quarter in the Tahoe Reno Industrial Center with Michael Milken purchasing 700 acres near Google for a tech campus and BlockChain purchased 170 acres and the surrounding 3,000 acres of mountainous view lots. Milken’s purchase shows Wall Street’s interest in the park and speaks to the continued strength of the market.
Lease rates remain strong throughout the marketplace. Asking rental rates finished Q3 at $4.56 per square foot/per year (PSF/YR), 8.5% higher than year-end 2016, and the highest asking rate in over a decade. When comparing size ranges, the largest year-over-year increase in asking rates was in the 30,000 square feet to 49,999 square feet range which increased 14.2% compared with this time last year to $5.76 PSY/YR.
|Inventory||Overall Vacancy Rate||Overall Net Absorption||New Supply (Construction)||Asking Rental Rate (PSF/YR)|
|Overall Vacancy Rate Q3 2016||Overall Vacancy Rate Q3 2017||Asking Rental Rate Q3 2016||Asking Rental Rate Q3 2017|
500,000 SF +
Source: Colliers International
For more insights, learn about the top 10 U.S. industrial emerging markets positioned to experience the most robust increases in demand from occupiers and owners. And stay tuned for more U.S. Industrial Market Spotlights!
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James Breeze is National Director of Industrial Research for Colliers International in the United States. Based in the Greater Los Angeles area, he prepares quarterly and specialized industrial research reports and interprets trends and data across the country.