The Reno Sparks Industrial Market closed the second quarter of 2021 with the same strength and resiliency that has been a staple for this market for the past few years. Strong market activity and a dwindling supply of product has pushed rents to an all-time high while posting a record low market vacancy rate.
The market recorded 2,008,590 square feet (SF) of gross absorption and had a positive net absorption of 773,365 SF. This helped propel the drop in overall vacancy by 10 basis points from Q1 2021 to 3.94%, the first time the Reno/Sparks market has fell below the 4% overall vacancy mark. All six submarkets in the Reno/Sparks MSA posted a positive net absorption, with the North Valleys submarket once again accounting for nearly 60% of the markets total net absorption, or 417,788 SF.
As previously stated, the Reno/Sparks industrial market saw overall vacancy drop below 4% for the first time with 3.94%. Direct vacancy saw an even greater decrease from last quarter, dipping from 3.83% in Q1 2021 to 3.65% in Q2 2021. The North Valley’s submarket continued to be the submarket leader in positive net absorption but was closely followed by the South Reno and Sparks submarkets, with 167,874 SF and 136,738 SF, respectively. The largest deal of the quarter belonged to Becknell Industrial with the leasing of their 286,487 SF Class A facility in the North Valleys to FTDI West. Most impressive was the resiliency of the North Valley’s submarket as it combatted 623,800 SF of new construction deliveries while posting the largest positive net absorption of any submarket.
Deal activity continued the strong trend with another 38 deals completed in Q2 2021. Of the 38 deals, 13 were in the flex size range (5,000 – 20,000 SF), 8 were in the mid-bulk size range (20,000 – 50,000 SF) and 17 were in the bulk size range (50,000+ SF), showing strong growth in all size ranges. The average deal size for Q2 2021 was 52,858 SF which shows a significant growth from the 45,213 SF average of Q1 2021. Average asking rates in the flex size range saw a slight decline from $0.86/SF down to $0.825/SF however both mid-bulk and bulk asking rates saw a significant quarter over quarter increase with mid-bulk increasing from $0.61/SF to $0.675/SF (10.5% increase) and bulk increasing from $0.468/SF to $0.495/SF (5.7% increase).
Four new deliveries were recorded for Q2 2021 which accounted for 707,800 SF of new construction, bringing the total market size for the Reno/Sparks MSA up to 95,939,883 SF. The majority of the new deliveries occurred in the North Valleys submarket. Avenue 55 delivered their final two buildings of their 3-building complex in Spanish Springs with a 419,040 SF building and 66,560 SF building, and Panattoni delivered the last building in their North Valley’s Commerce Center with a 138,200 SF building. The only other delivery this quarter was McKenzie Development’s 84,000 SF building off Double Diamond Parkway. The overall construction pipeline looks healthy with over 7.5M SF of new construction anticipated to be delivered in the next year or two however the major concern is the gap of new construction that Reno is going to experience due to the COVID-19 pandemic. When Reno first faced the pandemic early last year, much of the construction that was planned was immediately placed on hold as developers weighed their options. Although most projects were only put on hold for a quarter or two, this pause created a gap in new deliveries that could stunt growth given the lack of product available. More importantly, much of the new product that is planned to deliver in the new few quarters is already spoken for with preleasing occurring at an astronomical rate.
There was one significant portfolio sale this quarter with Starwood Capital Group purchasing a 19-building portfolio from Link Logistics (Blackstone) totaling 3.42 million square feet with bulk of the portfolio in our core submarkets. The cap rate was 4.20% setting a new record low for portfolio sales in Northern Nevada. This trend continues to highlight the overall interest and strength of the Northern Nevada Industrial market.