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Reno Industrial Market Report

4th Quarter 2023

Posted In — Market Research | Market Report

The Northern Nevada Industrial Market (NNIM) was tried and tested in 2023 as it weathered the highest volume of new construction deliveries the market has ever seen.

8,996,471 SF of new construction was delivered throughout the year, which was more than
2.5 times greater than the 5-year average of 3.5M SF. As expected, the onslaught of new
deliveries drove the vacancy rate up higher for the fifth consecutive quarter, with overall
market vacancy rising to 6.82% and direct market vacancy rising to 6.07%. Looking ahead
to 2024, the construction pipeline is nearly non-existent, with potentially very little product
being delivered next year. Assuming limited construction deliveries, it is likely that the
market will see a compression in vacancy rates given the five-year average net absorption
for the market is 4.5M SF.

In 2023, there were 105 new deals completed market wide which was a substantial increase
from only 92 deals completed in 2022. The flex market (5,000 – 19,999 SF) led the way with
53 new deals completed, and both mid-bulk (20,000 – 49,999 SF) and bulk (50,000+ SF)
posted impressive numbers with 24 new deals and 28 new deals, respectively. The I-80 East
Corridor submarket, which includes the Tahoe Reno Industrial Center (TRIC), was the biggest
benefactor of a tight market in 2023. The submarket grew 6,143,322 SF, or a 25% increase in
market size, in 2023 alone, and had a positive net absorption of 4,160,370 SF. The only other
submarket that saw a positive net absorption for the year was the South Reno submarket, which
delivered 1,690,497 SF, or a 16.5% increase in market size, and had a positive net absorption
for the year of 821,286 SF. All four quarters in 2023 posted positive net absorption, with Q4
having a positive net absorption of 411,361 SF, bringing the total for the year to 2,741,871 SF.
Average asking rates had a strong quarter as all size ranges saw an increase in rates from
the previous quarter. Flex rates increased from $1.27 to $1.30 PSF/Month, Mid-Bulk rates
increased from $1.06 to $1.08 PSF/Month and bulk rates rose from $0.91 to $0.94 PSF/Month.

As previously reported, the NNIM posted another massive quarter of new deliveries with 1,982,507 SF across the market. The South Reno submarket saw the greatest volume of new deliveries with 1,142,757 SF of new construction, which was a more than 10% increase in submarket size. Tolles Development delivered the last three buildings at Airway Commerce Park, totaling 752,517 SF and
Prologis delivered the built-to-suit 390,240 SF building for Dragonfly Energy. Dermody delivered two buildings at the LogistiCenter at I-80 West, totaling 429,000 SF in the Central/West Reno submarket and Pure Development delivered their second building in the Tahoe Reno Industrial Center at 1600 Peru Drive, a 410,750 SF stand-alone building.

Capital markets did see a nice uptick in activity at the end of 2024 with 3 large institutional sales in the fourth quarter. Westcore bought 700 Milan Drive in TRIC, a fully occupied 632,080 SF industrial building for $82.5M at a 4.6% cap rate on in-place rents. DRA Advisors bought the South Sparks portfolio, a 585,718 SF multi-building portfolio, for $91.2M, or approximately $156/SF, at a 6.25% cap rate on in-place rents. Finally, STAG Industrial bought 655 Spice Islands Drive, a 164,918 SF multi-tenant building in Sparks for $29.9M, or approximately $181/SF, which was a 4.3% cap rate on in-place rents.

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