The Reno/Sparks office market got off to a slow start in the first quarter of 2020, and unfortunately must expect weaker performance as we deal with Nevada business closures. Reno/Sparks office vacancy increased to 10 percent, a 0.2 point increase from one quarter ago, but a 2.4-point decrease from one year ago. Net absorption was negative 15,086 square feet (sf) in the first quarter, slightly less than one year ago, when negative 13,089 sf was absorbed in the first quarter of 2019. The average asking rate for office space increased to $1.87 per square foot (psf) on a full service gross (FSG) basis from the first quarter of 2019’s $1.69 psf.
Reno/Sparks office investment sales totaled 106,952 sf in the first quarter of 2020, with a sales volume of $24,967,798. This represented an average price per square foot of $233.45. One year ago, investment sales totaled 84,493 sf with sales volume of $20,650,000 and an average price of $244.40 psf.
In a normal time, it would be reasonable to expect the Reno/Sparks office market to improve its performance in subsequent quarters, and potentially see a successful 2020. Unfortunately, we are not currently in a “normal time”, with the area under an order of business closures due to the COVID-19 pandemic. Much is unknown about how the pandemic will impact the country’s health and economic performance. It is reasonable to expect a weak second quarter of 2020, and a negative market impact in the second half of 2020.
There was no other way to describe Southern Nevada’s office market in 2019 than “strange” when there is a reduction in office inventory for the first time since we started tracking the market 20 years ago. The first quarter of 2020 offered a refreshing change, posting 225,720 square feet of net absorption, up from one year ago. New construction in the first quarter reversed the decrease in inventory experienced in 2019. This sent office vacancy down to 12.1 percent, while the weighted average asking rate for office space remained stable at $2.22 per square foot (psf) on a full service gross (FSG) basis. Investment sales in the first quarter of 2020 showed an improvement over 2019, with sales volume of $107.1 million in 30 sales totaling 514,106 square feet with an average sales price of $208.40 psf.
While we would like to celebrate the strong demand Southern Nevada’s office market posted in the first quarter of 2020 without reservation, the COVID-19 pandemic makes that impossible. Hopefully, the impact on markets of the preventative measures being taken to slow this virus’ spread will be temporary, but at this point the full extent of the impact cannot be known. One potential result of expanded work-from-home schemes this year might be to further reduce the average footprint of office workers moving forward. We think office demand will be weak through the middle of 2020, with the potential to improve slightly in the fourth quarter.