Las Vegas Valley speculative office vacancy rate in Q1, 2016 rose 0.3 points to 18.7 percent from Q4, 2015. This was the first increase in the vacancy rate in four quarters. Vacancy rates ranged from 15.5 percent for Class C space to 23.5 percent for Class A space at the end of Q1. Although we saw a slight increase in the vacancy rate to begin the year, we expect that the Valley’s office market will continue to steadily but not quickly improve as the region’s economy and job markets do the same.
There were two office completions in Q1. They were both Class C buildings at the Pecos Springs Business Park. In the last 24 quarters, 12 quarters had new space come to market. However, nine have come in the 11 most recent quarters. On a year-over-year basis, completions stood at 77,381 square feet at the end of Q1; and the Valley’s office market remained 43.1 million square feet.
Net absorption for the quarter was -130,802 square feet. On a year-over-year basis, net absorption was 169,537 square feet. By product, medical led the way with 73,800 in gains on the year.
Under-construction office space in Q1 was 261,028 square feet. Four projects comprised this space: Phase 2 of Tivoli Village (Class A-68,000 square feet), the Union Village Medical office building (Medical-150,000 square feet), one building at Pecos Springs Business Park (Class C-8,028 square feet) and The Park at Spanish Ridge – an office complex for professionals in the Southwest submarket (Class B-35,000 square feet). Lastly, there were 423,000 square feet of planned office space at the end of the first quarter.
Although there was a slight increase in the vacancy rate in the first quarter of this year, the vacancy for office is down almost a full two percent in the last twelve months. This represents approximately 140,000 square feet of positive net absorption, year over year. The quarter finished up at 13.4 percent vacancy rate, due to a slight amount of negative absorption (13,148 sf).
In Class A product, there are only eight existing spaces and one planned space over 10,000 square feet in the market. This includes two in Downtown, three in Meadowood and four in South Reno.
This shortage is helping sustain a push for new office product, as one of these spaces is within the new office development at 5480 Kietzke Lane in the Meadowood submarket, the only new speculative building planned for the market. The building 5480 Kietzke Lane is shown as a 40,000 SF building with only 19,000 SF available, marking 21,000 SF of pre-lease activity. The building is topping the market with an asking rate of $2.75 per square foot. In most instances, Class A rates are no longer achievable below $2.00 per square foot.
Market activity has also spurred renovations. In Downtown, Basin Street Properties has completed their renovation of 50 W. Liberty Street, S3 Development has completely renovated 1 E. Liberty Street and Reno Engineering plans to renovate the offices at 100 N. Arlington Ave. In the southern end of Reno, the turnover in Northern Nevada Corporate Center has proved to be beneficial for NevDex as they redesign common areas in most of their recent acquisitions.
Southern Nevada analysis and statistics compiled by RCG Economics, Northern Nevada analysis provided by Dickson Commercial Group.