The second quarter of 2019 turned the tide of the last few quarters of negative net absorption in northern Nevada. The region registered a positive 70,949 square feet of positive absorption which pushed vacancy down to 11.7 percent this quarter, down from 12.3 percent last quarter. Despite positive absorption and a decrease in vacancy, the area continued to see rental rates decreasing. The average asking rental rate dropped from $1.74 PSF to $1.71 PSF. Breaking the trend from the last few quarters, no large blocks of space came back online. Further, with a number of small lease transactions completed in all parts of the greater Reno Sparks area, net absorption in the second quarter registered positive 70,949 square feet.
Sales remained active, however the average size of transactions was smaller. The two most significant sales were under 30,000 square feet. The 25,000 square foot building at 2195 S Virginia, which was partially in shell condition, sold at $158 per square foot. The building, positioned well across from Park Lane, has struggled to attract tenants.
Another exciting announcement is the Neon District, which will add to the gentrification of downtown Reno. Jacobs has acquired all of the properties necessary to complete the Neon District. Between this project and the expansion of ROC’s facility on Arlington, the neighborhood around St. Mary’s Regional Medical Center will see substantial improvement.
Southern Nevada does not appear to be uniquely vulnerable to a recession now, compared to its status before the Great Recession. Whatever economic storm will greet Nevada in 2020, southern Nevada’s commercial real estate market should be better positioned to weather a storm than it was a decade ago. A rare building fire and a dearth of new completions caused the Valley’s office inventory to shrink in the second quarter of 2019. With significant net absorption posted in the two previous quarters, southern Nevada’s office market looked poised for a major expansion in 2019. This quarter’s rather muted net absorption figure does not kill the chances for improvement in the second half of the year but does dampen expectations.
On top of the lower than expected net absorption there was a sharp increase in available sublease space. At this point, it’s best to take a “wait-and-see” posture concerning the market’s immediate future.
After several quarters of growth, southern Nevada’s medical office market took a step back in the second quarter of 2019. While pent-up demand from the recession and the healthcare legislation merry-go-around probably contributed to 2018’s strong demand for medical office space, it is also notable that 2018 saw the first medical office construction in southern Nevada in many years. It is possible that the softer demand experienced so far in 2019 was the result of a lack of desirable medical office space in the Las Vegas Valley.