Desk of Jeffrey Lowden

Reno 2018 mid year market report

From the desk of
Jeffrey Lowden

Question: Vacancy Rates are going down. Are we in a Landlord or Tenant driven market?

Answer: Tenant Rent increases, Construction starts, Land price appreciation

Most of the markets we are working in are seeing buildings starting to fill (tenant market transitioning to a Landlord market), construction costs up and Landlords driving lease rates up.

Vacancy Rate (Sub Mkts) Lease / Rental Rate Sale Price Per Foot

Reno Office 7% – 8% $1.20 – $1.75 $56 – $200 Reno Retail 6.5% – 9% $1.30 – $1.50 + CAM $175 – $192 Reno Industrial 2% – 4.5% $0.29 – $.079 + CAM $145 – $175 Reno Apartments 1.5% – 2.5% 2B/2B $900 – 1,200+ $100,000/Door & Up

The global economy emerged from a turbulent start to the year to record a period of steady growth in Q1 2016, thanks mainly to stronger growth in the Eurozone. Oxford Economics estimates that the global economy will expand by 2.2% this year. Capital values and rents recorded further growth in Q1 2016. While capital value growth continued to outpace rent growth in the office, industrial and retail sectors, the period saw a slowdown in capital value growth across the three sectors. The slower growth reflected the decline in investment volume recorded during Q1 2016, but there is still a considerable weight of capital in the market ready to be deployed, so the weakness is unlikely to persist for long. CBRE Thomas McDonnell President, Americas.

Answer the question – Are we in a Landlord or Tenant Driven Market? We are in a Landlord driven market. This market shift took place about 8 months ago, last Fall. Rental rates have climbed off the bottom and seen 25% – 30% increase in rates. Personal guarantees are back in leases along with a review of Tenants financials. But we see the current market as ‘slack’ or not going up or down, and still, tenants can ‘negotiate their lease terms’, and have some control.

Vacancy Rates – Half way thru 2018 we have seen a stall in appreciation or a leveling off in the commercial real estate market. We will continue to see vacancy rates decline because of limited supply and no new spec construction. Add to this the election confusion, CMBS loans and other 10 year notes coming due and banks still not lending to customers except for AAA credit. For all these reasons we will see current occupancy up and lease rents increasing along with land prices. This spells the perfect storm for developers to come out of the ground with a new product.

Construction – Construction is here. Try and get a bid and if you can, but be careful of the change order game, it could be expensive. Reno has limited subs or trades and this is putting pressure on supply and demand. More work means more workers will come back but it is still taking time. We project 12 months out.

Development is no longer an ugly word. Banks are starting to get aggressive again and rates are competitive allowing real estate developers and investors the opportunity to create market value.

Land – Land owners who held on thru the recession are getting out at 40% over 2012 values. If you were a land speculator and held on, you are now able to reap the benefits of your investment.

Tenant Representation – Sky West is actively assisting tenants to secure lease space. If you are looking for a great location or assistance with your lease, please contact us. As a Tenant our services to you are FREE. We are happy to sit with you and give you a complimentary evaluation.

RE Investment – Money is made on the “BUY” and for those that have properties free and clear or little to no debt they are in great shape as income will improve thru 2016.

If you are looking to lease, sell or buy commercial real estate please visit www.SkyWestServices.com , call us 775.827.6700 or visit our offices in Reno, Las Vegas, Los Angeles or Boise.
We look forward to assisting you with your commercial real estate needs.

Cordially