Industrial development trending upward in 2016
It wasn’t that long ago that the Reno/Sparks area, along with most of the country, was in the midst of a very severe economic downturn that caused the unemployment rate to soar into the double digits, new construction to come to a complete halt, and businesses to focus solely on simply surviving rather than growing. As we enter 2016, the Great Recession of 2008 and 2009 is well in the rearview mirror. The Reno/Sparks industrial market has seen steady improvement since early 2013 and signs suggest that trend will continue into 2016.
Like any business, industrial developers depend on the availability of capital to develop their projects. Since most of the recent industrial development has been focused on large distribution buildings, normally referred to as “big box” development, the capital needs for these large projects can be quite large. Without capital’s desire to invest in our area, there is no way local development firms could build these buildings and meet the growing demand from businesses expanding locally or companies electing to establish a presence in Reno/Sparks. Simply put, capital would not want to invest their funds in our region unless they saw the opportunities that were fundamentally sound. The Reno/Sparks market currently represents a sound investment.
To provide some context as to how much the industrial market has improved the vacancy rate for this area reached a high of 15.5 percent just after the recession and now stands around 8.5 percent. With the decreasing vacancy rates, especially in the larger blocks of space, developers started looking to build new product after five years of virtually no new construction. Dermody Properties was the first developer to build a speculative project and was rewarded when Amazon.com leased one of their buildings of 624,000 sf. Other developers, including my company, Panattoni Development, as well as ProLogis and SJS, followed suit with other development projects to meet the demand that had been building since 2013 and 2014.
While we are always in danger of over-building, it is my opinion that the lessons of the past will help limit the number of new projects going forward. Additionally, the amount of sound data available from the local real estate brokerage houses will help developers and their capital partners understand the trends in the market and this data will be used to determine if a project should move forward. Based on the amount of new construction as well as the amount of tenant activity I am seeing, I would expect to see the vacancy rates stay about the same through 2016 or perhaps even go up slightly as new speculative product is delivered to the market.
I would also expect to see projects constructed with higher trailer and car parking spaces as there is a recent uptick in both employee counts within these buildings as well as the desire by tenants to have ample trailer staging onsite. This is something quite common elsewhere but until recently, wasn’t a big emphasis in our market.
All in all, I expect the positive trends to continue in the industrial market for the next 12-24 months. The Reno/Sparks area is on the “map” and the cache associated with the number of new companies coming to our area will only enhance further investment in our market.
Doug Roberts is the Panattoni partner serving the Reno/Las Vegas/Phoenix area.
Christal Park Keegan’s professional experience includes working as an attorney for the National Judicial College in Reno and for the Chapman Law Firm in Northern Nevada.