According to the Nevada Department of Employment, Training and Rehabilitation, 222,300 office-related jobs were recorded in March 2008, a decrease of 3,200 or -1.4 percent, from March 2007.
In the first quarter of 2008, the Las Vegas Valley’s speculative office space vacancy rate increased by 1.2 percentage points to 13.4 percent. The Valley’s office inventory increased to 38.2 million square feet. The increase in vacancy was accompanied by a drop in the average monthly asking price, from $2.69 per square foot to $2.52 per square foot.
The office market saw a slow start in 2007 with first quarter absorption showing a weak performance against completions. The office market’s absorption of -205,206 square feet lagged behind 280,300 square feet of completions, resulting in an absorption-to-completion ratio of -0.73:1. The amount of office space under construction and currently planned amounted to 1.4 million square feet and 3.5 million square feet.
Whether the forward-supply of 4.8 million square feet will continue to lead to a rise in vacancy for the remainder of 2008 will depend on the depth of the current economic downturn. Additionally, sublease space represents a small but growing portion of the Valley’s speculative office market, rising from 144,000 square feet in first quarter 2007 to 249,000 square feet in first quarter 2008. Of the 249,000 square feet recorded, 228,000 square feet were vacant.
With all the negative press about the economy on TV and in the newspaper, it’s quite difficult to put a positive spin on the Reno office market. The cold hard fact of the matter is that the market is extremely weak at this time. Perhaps not as slow as the Northern Nevada housing market, but clearly on its heals.
For the third consecutive quarter, we lost ground on occupied space as we continued the trend of negative net absorption. In buildings more than 10,000 square feet, the market gave back more than 47,000 square feet in the first quarter. This had a dramatic impact on rents as rents on consummated transactions are at a five to ten percent discount compared to a year ago.
The market is not dead from a transaction standpoint, as tenants with expiring leases analyze better or more efficient locations. The office standards of freeway visibility, freeway access, proximity to executive housing, and access to amenities will dictate which buildings see the most activity. A case in point is the University of Phoenix relocated to the Reno Tahoe Tech Center. UOP was able to redesign their classrooms to use 2008 technology and obtain better freeway signage. This slowdown may also provide an opportunity for landlords to analyze the operations of their buildings and perhaps incorporate some green building concepts.
Southern Nevada analysis and statistics compiled by Colliers International and Restrepo Consulting Group
Northern Nevada analysis and statistics compiled by Colliers International Reno