Reno’s office market saw increased leasing activity in the third quarter of 2021 with nearly 40,000 square feet of positive net absorption, the highest the market has experienced in five quarters. Recovering demand for office space has driven year-to-date net absorption to 58,565 square feet. Strong tenant demand this quarter pushed market vacancy down to 12.6 percent, an 80 basis point decrease year-over-year.
Sales volume cooled off this quarter due to limited product on the market, though buyer demand continued to heat up, placing upward pressure on pricing. Quarterly sales volume declined slightly to $36 million, however average pricing grew by 19.8 percent year-over-year to $198 per square foot. Average actual capitalization rates continue to decline each quarter, decreasing 60 basis points year-over-year to an all-time low of 5.7 percent in Q3 2021.
The Reno/Sparks region added nearly 8,300 jobs over the past year as regional employment has rebounded to 99 percent of the pre-pandemic employment high water mark. With a return to the office in progress and impressive job growth in the area, many office tenants will be looking for a space that fits their needs in the months ahead. As regional employment continues to improve and businesses begin to occupy more space, Reno should see declining vacancy and positive net absorption through the end of the year and into 2022.
Southern Nevada’s office market continued its lockdown recovery in third quarter of 2021, with a second straight quarter of strong net absorption. Vacancy decreased to 13.9 percent, its lowest level in two years. Asking rental rates responded by increasing to $2.25 per square foot on a full-service basis.
The full impact of lockdowns for southern Nevada’s office market may not be known for years to come. However, at present it appears tenants are indeed favoring smaller office units outside of Class A office buildings. In addition, the move of tenants to the southwest submarket continues.
Class A office product has struggled to recover from the 2020 lockdown recession. It has experienced negative net absorption in five of the past six quarters, and now has its highest vacancy rate since 2015. Considering that 165,600 square feet of new Class A office under construction along the 215 Beltway, more challenges are expected to lie ahead. This is especially true for older Class A office buildings outside the favored southwest submarket. Class B and C product are expected to do well while the local economy continues to recover.