Office vacancy continued to decrease in Reno/Sparks, dropping to a very healthy 10.1 percent in the fourth quarter of 2019, down from 11.8 percent in the fourth quarter of 2018. After a sharp increase in vacancy in the first quarter of 2019, when it reached 13.1 percent, vacancy fell in every quarter thereafter.
There were no new completions of office space in the fourth quarter of 2019, and for 2019 as a whole office inventory only increased by 40,026 square feet in the new office building at 5520 Kietzke Lane. Net absorption in 2019 totaled 137,134 square feet. The average asking rate for office space decreased to $1.72 per square foot (PSF) on a full-service gross (FSG) basis from last year’s $1.74 per square foot.
Reno/Sparks investment sales totaled 248,210 square feet in 2019, with a sales volume of $40.75 million. This represented an average price per square foot of $164.18. Investment properties sold in 2019 had an average cap rate of 6.9 percent. Investment sales were largest for Class A properties, with $26.4 million of sales volume, followed by $10,150,000 of sales volume in Class B properties and $4.2 million of sales volume in Class C properties. Sales volume was highest in the Meadowood submarket ($22.35 million), followed by Central/Airport ($14.2 million), Downtown ($3.3 million) and Sparks ($900,000).
Southern Nevada had a fairly good 2019, with some segments of the market doing better than others, but all segments improving. The debate rages on over whether a recession is in the cards for 2020. There are definitely signs of slowing economic growth, but that does not in-and-of-itself portend negative growth in the future.
While the rapid increase in available sublease space in southern Nevada and the lackluster job growth in sectors associated with office space is worrying, the Valley’s office market performed well overall in 2019. Vacancy continued to decrease, and asking rates are on the rise. Net absorption was weaker in 2019 than 2018, but still positive. In 2020, more than 700,000 square feet of office space is scheduled for completion, with 183,449 square feet of that space already under construction. Pre-leasing of the space is fairly strong, and its completion might prove that Las Vegas has a supply problem, rather than a demand problem. If the market does not respond to the addition of new office space, though, or the national economy slows down in 2020, southern Nevada will be left with higher vacancy rates at the end of 2020.
After a bout with negative net absorption in the second quarter of 2019, southern Nevada’s medical office market has enjoyed two quarters of positive net absorption. Unfortunately, it is also experiencing a larger trend of weaker demand since hitting a high in 2017. A similar performance is expected this year, with demand either rising or falling slightly, but remaining positive.