The Northern Nevada market continues to post strong figures with vacancy dropping and increasing positive net absorption for another quarter. The vacancy rate is down to 11 percent from 11.5 percent the prior quarter. Due to large leases in the third quarter, there was 35,382 square feet of positive net absorption. All in all, the Reno office market is extremely active.
The only downside is that vacancy rates in certain submarkets, specifically Class A space in South Reno and Meadowood submarkets, are so low that it is hard to find available product. Typically this would result in construction but land pricing and construction costs make new construction hard to pencil.
The other hinge to building is to secure rents that cover the costs of the building. While rents are on the rise, increasing to $1.71 per square foot per month in the third quarter, they are still below where they need to be to make sense of new construction.
One interesting note is rent in the Downtown submarket increased this quarter to $2.01 per square foot per month on average from $1.94 per square foot per month last quarter. Ironically, the overall vacancy in this submarket has been on the decline. The Class A office market in downtown Reno is sitting at 14.4 percent, the highest for Class A office in our top three submarkets: Downtown, South Reno and Meadowood.
Demand for office space in Southern Nevada strengthened in the third quarter of 2018, with net absorption hitting a five quarter high of 421,352 square feet. This drove vacancy down to 14.5 percent, its lowest level in ten years.
Southern Nevada’s office market had 421,352 square feet of net absorption in the third quarter of 2018, increasing year-to-date net absorption to 861,354 square feet. This puts 2018 on track to equal (or nearly equal) 2017’s net absorption of 1,125,192 square feet, which was the highest net absorption for office space recorded in Southern Nevada since 2007.
The market will likely see the completion of 56,367 square feet of professional office space through the remainder of 2018, with pre-leasing at 89 percent in those properties. Another 463,918 square feet of office space is planned for completion in 2019. The weighted average asking rental rate for office space in Southern Nevada was $2.10 per square foot, full service gross. This was $0.09 higher than one year ago.
Year-to-date, the office investment sales volume was $539.9 million in 79 sales totaling 3.06 million square feet with an average sales price of $176.39 per square foot. Investment sales had lagged in 2018 compared to 2017, but the third quarter’s boost may help meet or exceed last year’s sales.