The signals to office developers to develop are typically simple. Economic growth creates demand for office space, existing buildings begin to fill, rents rise and developers can make new projects pencil out. That’s happening, sort of, across Nevada these days.
Vacancy rates in office buildings have fallen to about 12 percent in Las Vegas and about 11 percent in Reno, and rents are going up. But, the costs of land and construction, not to mention changes in the ways that companies use office space, continue to inject caution into the sector.
In Reno, office development activity is somewhat muted, despite rents that have reached a record $3 a square foot in some new space and steadily declining vacancies.
Melissa Molyneaux, senior vice president and executive managing director for Colliers International in northern Nevada, says a handful of office projects are in the development pipeline in the Meadowood area in central Reno, and developers are looking closely at other proposals. However, the costs of land, labor and materials in a booming market has put a damper on some plans.
“It’s hard to make new development pencil in Reno right now,” says Molyneaux.
On the southern end of the state, office development activity is already stirring along the southwest stretches of the Interstate 215 beltway.
Brad Peterson, a senior vice president and specialist in office properties with CBRE, notes more than 70 percent of Las Vegas office leases in the past decade have involved space in the southwest part of town, which has become the office center of Las Vegas.
New projects will strengthen the region’s position as a pre-eminent office location.
The 102,000-square-foot building, branded as “Narrative,” is scheduled for completion late this year. Frank J. Marretti III, founder of G2 Capital Development, says tenants will include Colliers International, a commercial real estate brokerage firm.
Marretti says the building provides excellent freeway visibility as well as good accessibility from locations across the Las Vegas Valley.
“We think there is some real pentup demand in the southwest market,” he said, noting that his company’s project is the first Class A office project launched by a private developer in the southwest Las Vegas market since the Great Recession.
Apart from Narrative, Peterson says other projects in the pipeline along the I-215 southwest beltway include 140,000 square feet at the Magnum tower at The Bend, about 121,000 square feet at 777 Sunset and 80,000 square feet at Rainbow 214 Sansone.
UnCommons, which combines 150,000 square feet of office space in two buildings and 90,000 square feet of retail and office space south of I-215 at Durango, is expected to break ground this spring with completion in the summer of 2021.
The Three Summerlin office project, meanwhile, is filling quickly, Peterson said.
However, Marretti wonders if the number of Class A office buildings planned in Las Vegas may be more than the market is ready to handle.
“I don’t believe all of them will be breaking ground over the next 18 to 24 months,” he says. Even if more competition arises in the office-development market, Marretti says he expects his company’s project will be well-positioned among the first — it not the very first — to market.
The flurry of office development in Las Vegas marks a strong recovery in a sector that’s been lacking vitality for a decade.
Peterson notes that only about 600,000 square feet of top-tier, multi-tenant office space has been built in Las Vegas in the past 11 years — projects that include Two Summerlin, the second phase of Tivoli Village and the UNLV Harry Reid Research and Technology Park.
The first building at the UNLV tech park, consisting of 1.5 million square feet in four floors, was recently completed. Tenants include the UNLV Office of Economic Development and Black Fire Innovation, a partnership between UNLV and Caesars Entertainment that’s researching innovation in the hospitality and gaming sector.
Interest in the first building was so strong that Gardner Company, developer of the 122-acre tech park, has begun planning for a second building later this year, said Dan Stewart, vice president of development and a partner in the Gardner Company.
The strong leasing activity is particularly noteworthy, Stewart says, because the UNLV Research Foundation launched the tech center as a way to boost the hightech economic development of southern Nevada. Tech center tenants all must support research, technology and the creation of a highly skilled and educated workforce.
Increasingly, new office developments will reflect the desires of the newest generations of office workers — Millennials and members of Generation Z.
The UNLV tech center, designed very specifically on the basis of research into the needs of next-generation workers, includes top-of-the-line technology, open floor plans, a half-sized basketball court, park benches and outdoor seating and technology hubs. The first building, which is solar-powered, provides special parking for fuel-efficient vehicles.
“The reinvented office, created for Millennials and generation Z, prioritizes efficiency and productivity,” says Stewart. “This is important to understand as generation Z begins to make its official entrance into the professional arena.”
The two generations will account for a third of the workforce within the next year.
The new types of office buildings will be distinguished by more than parking spots for electric vehicles and sleek, modern interior design.
“Tenants are more interested in, and in a lot of cases demanding, on-site services,” Peterson said. “The day of the singular office building or project without walkable amenities are trending to become a thing of the past. Mixed-use environments with retail services, food and beverage, fitness and entertainment are the places where corporations will be able to more effectively recruit and retain talent.”
Examples of successful office spaces in mixed-used developments are found in downtown Summerlin, Town Square, Tivoli Village, The Gramercy and The District, he added.
Locations with easy freeway access are equally important as the region’s roads become increasingly difficult to navigate, Peterson says.
Inside the front door, many office users continue to seek open, airy spaces that encourage collaborative work — and break areas increasingly are open as well, Peterson said. Storage areas are shrinking as offices use less paper, and formal reception areas also are disappearing in some cases.
But, new office layouts mean more people are working in less space, and that creates challenges of its own.
“Parking has become a large issue with many companies and a barrier to entry for many office buildings that are trying to attract tenants that need more parking,” Peterson says.
Another factor is the growth of co-working spaces. For instance, Dana Berggren, among the pioneers of co-working in the Las Vegas region, is exploring expansion of The Coop, a co-working space at Village Center Circle of Summerlin.
The Coop offers 12 private offices as well as open work stations, dedicated desks, conference rooms and a communal table for collaboration.
Since Berggren launched The Coop in 2017, it’s drawn a diverse mix of office users — tech workers, creatives, tutors, coaches and professionals in real estate, finance and insurance. The space often provides a home for those who work remotely for large corporations, freelancers and travelers who need a quiet space to get some work done. But, co-working is more than just space.
Berggren focuses on creation of a collaborative community within The Coop. Members gather for a monthly breakfast, they hear presentations by business experts and they participate in free workshops. Outsiders are invited to the presentations and workshops, but they pay a small donation that goes to a non-profit selected by the speaker.
The location, flexible terms and opportunities for socialization prove attractive to folks who had been working from coffee shops and home offices, and Berggren said membership has remained strong enough that expansion may be in the cards this year.
“I’m always evaluating opportunities, but there are so many moving parts to running a coworking space,” she explained. “I’m trying to find the balance between ambition and sanity.”
Bigger players in the co-working environment also are growing in Southern Nevada. WeWork has opened about 150,000 square feet of co-working space at Two Summerlin and Town Square. Regus, meanwhile, is looking to increase the number of co-working and fully serviced office locations it provides in the Las Vegas area, Peterson says.
Co-working hasn’t made as much of a splash in northern Nevada. Molyneaux speculates that co-working companies may not be able to find the big spaces they need. At the same time, she says there simply may not be enough potential users of co-working spaces to justify their development.
Flexibility is Key
As the workforce changes, it appears projects with the most success are those that are flexible. Narrative, Marretti explained, is designed to provide space for tenants with a variety of needs, from the tech company with a trendy open-space concept to a buttoneddown law firm that requires private offices.
The key, Marretti said, is a building with a design that will remain attractive no matter how tastes and trends change over the years.
In northern Nevada, owners and developers of office buildings face another challenge as the region draws a growing number of technology companies. Molyneaux said many companies new to Reno ramp up slowly — partly because they want to make sure that the much-heralded renaissance of the northern Nevada economy is real.
Molyneaux points to the example of one tech company that originally leased a small 3,000-square-foot office when it came to Reno. A while later, it moved into 7,000 square feet, and it recently expanded again into 13,000 square feet.
New office developments face a variety challenges — finding the right land at the right price, pre-leasing enough space to convince lenders to finance a project, keeping construction costs under control and keeping a project on schedule, given the busy workload of projects underway across southern Nevada.
Peterson notes that sticker shock these days has been an issue with potential tenants who haven’t seen new projects — and new rents — for more than a decade.
In addition, he said tenant-improvement costs have been increasing steadily, and tenants are picking up a bigger part of the cost of getting space ready.
“In 2020, and going forward for the next few years at least, many companies will be caught unaware of the lack of the type, price, location and availability of the office they would like to occupy,” Peterson says.
Finding sources of capital — either debt or equity — is a lesser issue right now.
“We’re dealing with a great economy. In a great economy, capital is looking for ways to be put to use,” Marretti says. “Financing is not a challenge.”