The Reno/Sparks office market has begun its journey to recovery in the fourth quarter of 2020, with positive office job growth and strong in-migration pointing to a rebound in the near future. Office vacancy saw a 40 basis point decrease since the previous quarter, from 13.1 percent in the third quarter to 12.7 percent in the fourth quarter. Net absorption of 35,767 square feet in the fourth quarter of 2020 was a welcome surprise after the market posted negative 108,042 square feet in the third quarter. The market average asking rate of $1.77 is unchanged year-over-year after a 1.6 percent decline between the third and fourth quarters of 2020.
Annual office investment sales volume of $67 million across 384,488 square feet of space was a 50 percent decline in sales volume compared to 2019’s annual total. Market uncertainty surrounding office assets has led investors to seek opportunities in other sectors. Investment sales activity is expected to start recovering in 2021.
Though Reno/Sparks has certainly suffered from the COVID-19 pandemic, many companies continue to set their sights on northern Nevada for expansion and relocation. The region has experienced continued positive migration in recent years. It is still unclear how long the effects of the pandemic will be felt, but job growth and an influx of people are promising signs of a bright future for the Reno/Sparks region.
Southern Nevada’s office market entered into negative net absorption territory one quarter ago, and unfortunately remained there in the fourth quarter of 2020. Fourth quarter net absorption was negative 133,081 square feet, bringing net absorption for 2020 as a whole to negative 251,158 square feet.
Office vacancy increased to 13.4 percent, an increase of 1 point from the fourth quarter of 2019. The weighted average asking rate for office space increased to $2.22 per square foot on a full service gross basis.
In the early stages of the pandemic and business closures, many pointed to dramatic changes ahead for office space. While changes are certainly expected in 2021, especially for upscale, Class A office users that can afford higher rents, it remains to be seen whether other office users will change their needs dramatically.
Reports on productivity and employee satisfaction outside the office environment vary widely, and new information on COVID-19 and the existence of a vaccine are keeping the crystal ball hazy as to how office needs will actually change, rather than theoretically change. For now, demand for office space is expected to improve in 2021. However, negative net absorption may continue in the first half of the year.