By CBRE Reno
Strict stay-at-home orders due to the COVID-19 pandemic are leading the U.S. economy into a recession with a very sharp GDP decline in for Q1 2020. However, the unique nature of this downturn could result in an unusually swift economic recovery that may begin as early as Q3 2020.
Prior to the pandemic, the Reno industrial market began to post healthy figures for Q1 2020, including 851,944 square feet of net absorption, a declining vacancy rate, an uptick in development activity and steady asking lease rates. With consistent demand coupled with the lack of vacant space, the market has experienced solid market fundamentals in recent quarters. Overall transaction volume also remained strong in Q1 2020, with an emphasis on capital market activity as a few notable sale transactions occurred during the quarter.
The vacancy rate ended Q1 2020 at 3.7 percent but also fluctuated during the past year as new construction was delivered to the market, then subsequently leased shortly thereafter. Currently, there is more than 2.8 million square feet of speculative development under construction, a welcomed sight for a market with low vacancy and high demand. North Valleys Commerce Center is the largest project at 1.4 million square feet. They are scheduled to phase-in deliveries through the remainder of 2020 and will be able to serve a wide variety of industrial users in a diverse market.
The industrial market in Las Vegas closed Q1 2020 with more than 1.3 million square feet of new space, extending the longest expansion in the market’s history. In the postrecession period, since 2013, developers constructed more than 25.6 million square feet making Las Vegas one of the fastest growing markets in the country. A few of the notable completions during Q1 2020 is the 341,251 square foot Tropical Logistics Center, 322,560 square foot Northgate Distribution Center and the 251,800 square foot Logisticenter at Speedway. During the first quarter nearly 700,000 square feet of new industrial space broke ground bringing the total space under construction to 5.8 million square feet.
With nearly half of the new construction pre-leased and relatively strong leasing activity, total net absorption for the first quarter was 1.6 million square feet, a 72 percent increase over the previous quarter. The most active industries to lease space during the first quarter were e-commerce, logistics companies, food related users, and pharmaceutical users. With demand outpacing new supply the direct vacancy rate decreased to 3.6%, 30 basis points lower than Q4 2019 at 3.9 percent.
CBRE brokers report that demand for “big-box” space will continue to be relatively strong, however as a result of the COVID-19 pandemic there will be a short-term slowdown in leasing activity, particularly for smaller spaces, and because of the amount of new construction there will likely be a moderate increase in vacancies.