If first and second quarter office space activity reports continue to be robust (and there’s every indication they will), Nevada – both the southern and northern markets – will enjoy a better year than it did in 2001, say real estate industry experts, but with a hint of hesitancy in their collective voices. Last year, transactions in all office market classes statewide came to an almost screeching halt following the Sept. 11 attacks, but prospective tenants, both local and out-of-state, have proclaimed 2002 as a new year and are moving on with their business lives. As a result, telephones are ringing again and the “lookie-lous” are out kicking dirt and making sure the doors to their new executive suites swing open properly.
“I think we’re going to see a pretty strong summer,” said Brad Peterson, senior vice president of CB Richard Ellis’ Las Vegas office and a Society of Industrial & Office Realtors (SIOR) member. “A lot of things were put on hold (because of Sept. 11) and people didn’t want to make critical decisions. What we’re seeing is a lot of pent-up demand.”
“After Sept. 11, we saw a real curtailing in the demand cycle from outside the area,” related Robert “Tim” Snow, the president of Thomas & Mack Development Group, who also sits on the board of directors for the National Association of Industrial and Office Properties (NAIOP). “In the first quarter, we saw a flurry of activity [and] we expect to see a rebuilding of demand during the rest of the year.”
The same prognosis holds true in the Reno-Sparks area as well. “We had a softening of the market because there was some skepticism out there,” noted Ed Yuill, vice president of operations for the Ribiero Companies. “People weren’t ready to sign off. They had a wait-and-see attitude. But our activity has really picked up in the first part of the year.”
“We had a dismal fourth quarter like the rest of the nation,” explained John Pinjuv, president of Grubb & Ellis/Nevada Commercial Group in Reno. “Our activity has picked up dramatically since the first of the year. Six months ago, tenants were slow to sign, but there are a lot tenants out looking now [so] I think we’re getting back on track.”
As a result of Sept. 11, vacancy rates statewide increased as new space opened to fewer- than-anticipated tenants.
Being the fastest-growing metropolitan area in the United States, it’s no wonder most of the new major office buildings have been constructed outside downtown Las Vegas. The only exception is the six-story, 103,951-square-foot Pauls Corp. building, the first Class A structure to open in downtown Las Vegas in the past 25 years. Class A demand is limited because the Las Vegas metro area is still too small to be classified as a true “regional center,” like Denver, Phoenix, or Portland, Ore., places where corporate America sets up its decentralized administrative shop. Class A currently represents about 12 percent of the total office market and slightly more than 7 percent of the office space under construction or planned. Several national companies with local offices and many high-profile local professional firms wanting a prestige Class A location have flocked to the “outer-downtown core” area, where the 115-acre Hughes Center offers more than 4 million square feet, nearly all occupied, within a $3 taxi ride to McCarran International Airport.
Class B space has been, and is expected to be, the bread-and-butter of the local office market. “Not that much Class A space is coming on stream,” reported Lee and Associates’ Chuck Witters, who is one of four SIOR chapter members to capture 51 percent of the Las Vegas office lease market in 2001. “What is coming on line is Class B product. That’s where most of the net absorption will be this year.”
The American Nevada Corp. represents a notable anomaly, since both its Corporate Center and Corporate Center South complexes efficiently blend a combination of Class A, B, and multi-use flex space. Both 90-acre projects located on the I-215 Beltway in Henderson’s Green Valley area have experienced strong demand and are a focus of American Nevada’s schedule for new office construction this year. As these projects suggest, when it comes to the question of “location, location, location,” most office market experts agree, the answer is suburbs, suburbs, suburbs.
“In the past, most activity has been around the freeways in suburban locations,” said CB Richard Ellis’ Peterson. “Summerlin, Green Valley and around the airport is where we’ll see the most interest this year. Rainbow and Jones, just off the Beltway, will be a very hot office corridor in the next two to three years.”
As for office/warehouse, office/flex space, the Ribiero Companies, a perennial powerhouse, reported business is strong and that it is looking for another piece of land to add to its existing 11-location portfolio. “We’re actively seeking another Green Valley site,” said Ribiero’s Senior Asset Manager Dan LaLiberte, who manages some 1.8 million square feet of space locally.
The Ribiero Companies is also adding at least five new garden office and light industrial projects to its Reno-Sparks portfolio, which currently consists of more than 1.5 million square feet of space in 100 buildings at 20 different Truckee Meadows locations.
Ribiero’s Yuill said his absorption is running 7,000 to 10,000 square feet per month and that his current 10 percent vacancy rate should drop to 7 percent by mid-summer. “Everything’s positive [because] inquiries are up and executions of agreement are up,” he said cheerfully. “I hope everything maintains that posture. It will be a great year if it does.”
Yuill added that, even though his company has traditionally stayed mostly in the South McCarran area for the past 29 years, Ribiero Companies might expand its horizons and venture into building office and light industrial space in Carson City.
As for big box and large floor plate office space, Grubb & Ellis’ Pinjuv said there’s been no new buildings in downtown Reno for the past 10 years and that most leasing and new construction are occurring just south of downtown. “Our figures show 80 percent of the new office growth is at the south end of Reno in the Meadowood and South Meadows submarkets,” said Pinjuv, an 18-year Northern Nevada resident. “There’s been a positive trend, though, in the downtown submarket. Since the fourth quarter of 2001, the vacancy rate has actually dropped as vacant space became absorbed.”
He said the other submarkets – the airport and Sparks – have held their own. He noted, too, that outside the five-submarket Truckee Meadows area there’s no activity planned in the predominantly residential northwest/Stead area, but a couple of large office projects are on the drawing boards for the Spanish Springs area north of Sparks.
Pinjuv said the trend among Northern Nevada developers has been to complete the second and third phases of existing projects and let them begin absorption before embarking on new complexes. While plans have been scaled back for new Class A and Class B space, the hot ticket now is small owner-user buildings ranging from 3,000 to 10,000 square feet.
The 2002 Outlook
To put what lies ahead for both Northern and Southern Nevada in perspective, Thomas and Mack’s Snow said, “The bottom line is – we’re cautiously upbeat as to where the market is going.”