The Reno office market finished 2017 strong with 61,734 square feet of positive net absorption year-to-date, despite the slight decrease in the fourth quarter with negative 17,608 square feet. The South Meadows submarket finished the year with positive 47,549 square feet of absorption, making it the top submarket in the area. In terms of type of buildings, Class B space finished the year on top with 41,018 square feet of positive absorption, trailed by Class A space with 33,892 square feet of positive absorption and Class C space with negative 13,176 square feet of absorption.
The year ended with 11.1 percent direct vacancy and 12.1 percent total vacancy inclusive of 1 percent of sublease vacancy. Class A office space remains the tightest with 9.8 percent direct vacancy, followed by Class B at 10.6 percent and Class C buildings at 16.6 percent.
Rental rates continued to increase with the year ending at $1.68 per square foot per month full service for buildings that do quote rates. Rents have increased $0.07 since the beginning of 2017 as well as $0.03 from the third quarter. Class A space posted at $1.87 per square foot, with Class B rates not far behind at $1.73 per square foot. Class C space continues to have a wide gap between Class A and B space with a rental rate of $1.44 per square foot.
Growth trends in the Las Vegas Valley continue to be slow and steady. Demand for office space appears to be increasing. Net absorption in Southern Nevada’s office market exceeded 1million square feet in 2017. Since 2012, vacancy has fallen from 21.1 percent to 15.4 percent in Q4 2017, while asking rates have increased $0.16 per square foot on a FSG basis.
Southern Nevada’s office market saw approximately 346,000 square feet of new development in 2017 with +/-150,000 square feet in the newly constructed Credit One headquarters building fronting the I-215 in the Southwest submarket. The amount of office space in the construction pipeline increased dramatically in 2017. There is approximately 1.4M square feet of office product under construction or planned for 2018 with the majority delivering late 2018 early 2019.
Summerlin and the Southwest submarkets currently command the highest demand for office space. Companies continue to seek well located lifestyle centers that offer on-site amenities and direct freeway access between the office and the residential communities they draw their employees from. While landlords in the office sector continue to develop work space working around evolving trends for flexible, efficient, productive smart office space, it has become increasingly important to develop multi-generational space to appeal to a broader audience.