The Northern Nevada office market pulled ahead this quarter and 2018 is setting up to be a productive year. The market posted an increase in positive absorption to 63,786 square feet and the vacancy rate decreased to 11.7 percent from the 12.3 percent recorded in the first quarter of 2018. Office activity has been strong in the Reno market with sales dominating the quarter, including many large sales to owner-users and investors.
Leasing has remained stable, yet demand for big blocks of Class A space, with few viable space options, has made expansions for existing tenants difficult and even more so for tenants looking to enter the Reno market. Due to this phenomenon, rents are unquestionably on the rise as the average asking rental rate at the close of 2017 was $1.67 per square foot, per month, full service and this quarter posted $1.70 per square foot.
Due to lack of inventory in the office market, there are rumors of future office construction to provide large blocks of space. Tenants looking for 20,000 square feet and up have a very difficult time finding options, especially in Class A buildings. Buildings that can accommodate 20,000 to 40,000 square foot users are expected to be successful as there are currently no options in the market.
Demand for office space in Southern Nevada’s office market increased to 237,968 square feet of net absorption. New completions of office space totaled 270,646 square feet in the second quarter, outpacing net absorption. Fortunately, it was close enough to keep office vacancy at 15.1 percent. The weighted average asking rate for office space increased in the second quarter to $2.11 per square foot on a full service gross basis.
Three office buildings were completed in Southern Nevada in the second quarter of 2018 totaling 270,646 square feet. The market will likely see 192,800 square feet of professional office space completed through the remainder of 2018. Another 374,389 square feet of office space is planned for completion in 2019.
Southern Nevada’s office market had 420,038 square feet of net absorption in the first half of 2018. Since the current recovery started in earnest in 2014, net absorption was highest in Class B buildings (1.3 million square feet), followed by Class C buildings (1.0 million square feet) and finally Class A buildings (809,575 square feet).
At midyear 2018 the office investment sales volume was $300.6 million in 33 sales totaling 1.6 million square feet with an average sales price of $186.77 per square foot. The average cap rate was 8.8 percent at midyear 2018.