The office sector witnessed an increase in vacancies for the fifth consecutive quarter. The vacancy rate reached 25.6 percent by the mid-point of 2012, up 0.4 percentage points over last quarter. Compared to the same period last year, the vacancy rate reported a more dramatic 1.3 percentage point increase.
Approximately 128,000 square feet of new office space entered the market during the second quarter of 2012. The first phase of Seven Hills Plaza contributed 68,000 square feet of partially pre-leased space. Another 60,000 square feet of speculative space was sourced to the Windmill Office Plaza. Combined with 310,000 square feet of new product in the first quarter, year-to-date completions totaled 437,700 square feet.
With few planned projects moving forward into development, the amount of space actively under construction is slowly dwindling quarter by quarter. By the end of the second quarter of 2012, three projects, totaling 85,900 square feet, remained actively under construction.
The downtown sub-market is one bright spot in the current office market. The area reported a vacancy rate of 9.5 percent during the second quarter of 2012, which is 16.1 percentage points less than the market average. Pricing in the downtown region is 18.6 percent higher than the average at $2.29 per square foot per month. It is likely that as the area continues to redevelop, it will out-perform other portions of the Las Vegas valley office market.
The Apple announcement grabbed all the headlines in the second quarter and for good reason. With an expected move of office employees to Downtown, new development could be on the horizon. That timeline has yet to be set, but the announcement has added to the excitement of Downtown Reno. Activity did not stop there as the South Meadows sub-market had positive absorption mainly due to NJVC leasing Oracle’s former data center of almost 20,000 square-feet. Other deals this quarter include Video Game Technology’s expansion in NevDex, the new office of Brownstein Hyatt Farber Schreck LLP at Basin Street Properties’ 50 W. Liberty Street, Scott Weed D.D.S. at 6151 Lakeside Drive and the new office of Raymond James Financial Planning in Downtown Reno.
At the half way point through the year, we have positively absorbed (net) almost 100,000 square feet of office space. This has put the overall direct vacancy at 16.17 percent and available square footage at 1,210,044 square feet. This is great news, but most of that space continues to be absorbed in Class A buildings in the core sub-markets: Downtown and Meadowood. Vacancy rates in Class B and C buildings in most sub-markets are still over 20 percent.
Look for Q3 vacancy numbers to level off. Owners with the cash for tenant improvements and the willingness to cut a deal, especially in the South Meadows sub-market, are the owners who will keep weathering the proverbial storm.
Southern Nevada analysis and statistics compiled by Applied Analysis, Northern Nevada analysis and statistics compiled by NAI Alliance Reno
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