Reno’s office market has continued to show its resilience one year into a once-in-a-century pandemic. Reno’s office demand has stabilized in the first quarter of 2021 and vacancy has only slightly ticked up over the last year. Office vacancy saw a 20-basis point decrease since the previous quarter, from 13.6 percent at the end of 2020 to 13.4 percent in the first quarter of 2021. With 22,314 square feet of net absorption, Reno posted the second consecutive quarter of positive net absorption since the start of the pandemic. The market average asking rate of $1.84 was a 3.9 percent increase over last quarter, but is nearly unchanged year-over-year.
The Reno-Sparks area saw a slight increase in sales activity over the past 12 months, which has been atypical of most office markets in the US. Trailing 12-month sales volume increased 1.6 percent, up to $126.8 million, compared to the 12-month span prior to COVID-related restrictions. Office sales activity should continue its positive trajectory throughout the year with many smaller investors looking to trade out of California assets into northern Nevada properties.
With new residents continuing to pour into the region, companies are following their workforce’s migration at a growing rate. As vaccines continue to roll out and companies plan for the future, expect office space demand and investor interest in quality office assets to increase throughout the year.
After dipping into negative net absorption territory at the end of 2020, office demand rebounded this quarter, with net absorption totaling 52,240 square feet. This brought vacancy down to 15 percent from 15.1 percent last quarter. This is still an elevated level of vacancy compared to one year ago, prior to the imposition of business closures.
Numerous tenants were driven out of business in 2020 by the economic disruptions created by business closures. This created a shift in how office space is used by business. Companies that remained productive often did so without their employees using their office space.
This shift calls into question how much office space tenants will require in the future, even when business restrictions are ended. In addition, the change accelerates an existing trend of less office square footage per employee caused by the productivity impact of computers.
Despite fears last year of a coming office apocalypse, demand for office space is expected to continue to improve through 2021. Recovery, however, will likely be sluggish as businesses reevaluate their office needs and experiment with new working schemes.