The Northern Nevada Industrial Market (NNIM) has witnessed a notable increase in vacancy rates over the past year, primarily due to economic uncertainties and shifting market conditions.
At the end of the first quarter of 2024, the overall vacancy rate stands at 8.68%, reflecting a 186-point increase from the last quarter. For the first time in 23 quarters, since Q2 of 2018, the Northern Nevada Industrial Market posted a negative net absorption for the quarter.
Despite the uptick in vacancy rates, Reno has experienced a surge of new construction deliveries in its industrial market. Four new industrial properties were completed last quarter, adding 1,111,260 square feet (SF) of leasable space to the market. This brings the total new construction delivered over the previous two years to a staggering 13,638,902 SF, which represents more than a 13% increase in total market size. This influx of new construction signifies ongoing investor confidence in the region’s long-term economic prospects and the demand for industrial real estate.
In response to heightened vacancy rates and increased sublease availability, industrial rental rates in Reno have undergone a slight decrease in recent months. While still competitive compared to national averages, landlords have become more flexible in their pricing strategies to attract tenants and fill vacant spaces. Market wide flex rates (5,000-19,999 SF) decreased $0.05 PSF/month last month from $1.30 PSF/month to $1.25 PSF/month. Mid-bulk rates saw a slightly smaller decrease, dropping from $1.08 PSF/month to $1.05 PSF/month, and bulk rates dropped $0.09 PSF/month from $0.94 PSF/month to $0.85 PSF/month.
The two premier bulk submarkets, the North Valleys submarket and I-80 East Corridor submarket, hold the majority of the vacancy with the North Valleys sitting at just over 2.3M SF of vacancy and the I-80 East Corridor sitting at more than 3.2M SF of vacancy. With the delivery of over 1M SF of new product in the I-80 East Corridor last quarter, the submarket officially took over the spot as the largest submarket in the NNIM. The North Valleys is holding strong, however, with average asking rates across the submarket holding at $0.95 PSF/month whereas the I-80 East Corridor submarket has an average asking rate across the entire submarket at $0.75 PSF/month. The core submarkets, Sparks, Airport and South Reno, are all showing extreme resilience despite an uptick in vacancy with the average asking rate for all three submarkets firmly holding around $1.10 PSF/month.
Looking ahead, the new construction supply for the NNIM is coming to a screeching halt with less than 1M SF of new construction expected to be delivered for the remainder of the year. The onslaught of new deliveries has tested the market like never before with over 22M SF of new construction being delivered since 2020, growing the market from just over 91M SF to over 113.5M SF in just a few short years, a staggering 24% increase in total market size. Overall, Northern Nevada’s Industrial Market continues to evolve amidst changing economic conditions, with an influx of new construction and adjustments in rental rates shaping the landscape for tenants and investors alike.
Capital markets was limited to one sale in the first quarter of 2024. Kin Properties bought 10 Isidor Court in Spanish Springs from Scannell Properties, a fully occupied 461,581 SF industrial building for $43.1M at a 5.63% cap rate on in-place rents.
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