Industrial, distribution sectors begin to stir

Some significant leases of industrial space give observers hope that the worst days have passed for the manufacturing and distribution industries in Northern Nevada.

The addition of a new tenant - its identity hasn't been disclosed yet - into 236,000 square feet of a 491,000-square-foot industrial building owned by Kennedy Associates in the Tahoe Reno Industrial Center, as well as a few other noteworthy transactions, increased the amount of occupied industrial space in the region by 120,723 square feet during the second quarter, industrial brokers at NAI Alliance reported.

Northern Nevada industrial real estate experts think the days of rising vacancies might be ending.

"I think we are seeing light at end of the tunnel," said Eric Bennett, vice president with the CB Richard Ellis industrial properties group. "We are starting to get a little bit of momentum."

Dave Simonsen, senior vice president of the industrial properties group with NAI Alliance, said the nervousness and waiting that stalled transactions finally gave way. The number of deals completed in the second quarter leads Simonsen to believe the industrial market is headed in the right direction.

But the vacancy rate for the more than 73 million square feet of industrial space in Northern Nevada still hovers around 15 percent, or roughly 11 million square feet, and the amount of vacant space grew by 1.8 million square feet since late last year.

Mike McCabe, senior vice president of the industrial properties group with Colliers International, said the current vacancy rate is the highest he has seen in 30 years in this market.

Bennett said the exodus of companies from the area may be over as several sizable tenants in the market renewed their leases. That's a reversal of the trend in late 2008 and early 2009, when large companies left the market.

"We are starting to see that turn around a little bit, which is going to slowly start taking that 15 percent vacancy rate down," Bennett said. "We are slowly recovering. We are not going to come out of this gangbusters with the economy that is out there, but an average market would be considered a good market in today's environment."

A major new company in the region is Propak Logistics, which leased 77,500 square feet at TRIC. The leasing activity in Stead and east of Reno accounted for 61 percent of market activity, the NAI Alliance report says.

McCabe said Colliers has seen a rise in inquiries from users looking for roughly 150,000 square feet each, with many of the companies coming from referrals through Collier's California offices.

"Our activity level certainly is up in the second quarter," McCabe said. "Companies still look at Reno-Sparks in a positive light. The economy is dragging decision making, but as soon as companies feel as though the economy starts to stabilize we will see companies make the jump to make moves in the supply chain to drive savings that they have identified."

Lower fuel prices and competitive shipping rates help make Northern Nevada attractive for business relocation, said McCabe. And buildings are being rented at prices that haven't been seen since the early 1990s. A CB Richard Ellis mid-year report found the oversupply of industrial building space has landlords cutting effective rents by as much as 30 percent from three quarters ago in an effort to lure new tenants.

NAI Alliance's Simonsen says that nervousness amongst landlords led to significant reductions in lease rates in the first two quarters, but new tenants and a lack of new construction will help shore up rents.

"As the vacancy rate drops and spaces start filling up, rental rates will firm up," he says.