While 2018 was a strong year for the Reno office market, the return of large blocks of space ended the year on a negative note with negative net absorption of 79,018 square feet. As a result, vacancy pushed up to 11.8 percent from 11.0 percent in the third quarter. This was, however, lower than year end 2017 where it ended at 12.1 percent.
Significant leases continued in the fourth quarter, despite the negative statistics, proving there is not a lack of deal velocity but rather large givebacks of space. In fact, almost all submarkets had significant leases inked in the fourth quarter.
In addition, sales remained very strong through the fourth quarter and this year ended with more transactions over 10,000 square feet than in recent history. This year sales ranged from value-add, investor, and owner-user transactions all creating a very strong sales market.
The return of large blocks of space may alleviate the tight availability for large office users looking for additional options or to enter our market. Unfortunately, much of the space given back is outdated and outside of desired areas that tenants are currently looking for.
One bright spot of the year end statistics is average asking rental rates continued to increase, starting the year at $1.67 and ending at $1.79 per square foot per month full service, pushing rents closer to where they are needed for new construction.
Pop the corks, because it has been a very happy year for Southern Nevada’s office market. By year’s end, vacancy was heading down and net absorption and asking rates were heading up. Southern Nevada’s office market appeared to be a “baby bear” market – not too hot, not too cold, just right for a decade-old recovery. The industrial market in Southern Nevada boomed slowly and then all at once. So far, the office market’s improvement has been at a slow and steady pace. This pace could quicken in 2019 if economic fundamentals remain strong. There is little office space on the drawing board now, so an increase in demand for office space in 2019 could bring vacancy closer to the long-term average of 9 percent.
After several years of post-recession ebb and flow, Southern Nevada’s medical office market posted a second year of unambiguous growth. Southern Nevada’s medical office market has posted two years of strong demand. Inventory grew by 614,367 square feet over the past two years, while net absorption over the same period totaled 796,726 square feet. This brought the vacancy rate down from 15.6 percent in the fourth quarter of 2016 to the current rate of 12.1 percent; an impressive recovery after several years of shallow improvement following the Great Recession. The healthcare market still has significant challenges ahead of it, legislative, technological and demographic, but for now is on a better trajectory than it has been in many years.