WESTERN SNAPSHOT, AUGUST 2004

Reno/Lake Tahoe Office Market

Thomas Johnson Broker Sperry Van Ness|Gold Dust Commercial Associates

The northern Nevada office market experienced a strong resurgence last year, which has carried over into 2004. “We have close ties to the Northern California market, including the still hard-hit areas of San Francisco and San Jose,” says Thomas Johnson, a broker at Sperry Van Ness/Gold Dust Commercial Associates in Carson City, Nevada. “Following the dot-com bust, the road back [was a long one] from Reno’s 2001 low point of 108,000 square feet of net absorption.” The market responded with 340,000 square feet of absorption in 2002, 291,000 square feet in 2003 and continued improvement through the second quarter of 2004.

The majority of Reno office developments have taken place outside of the downtown area, with the bulk occurring in the South Meadows and Kietzke-Del Monte corridors. However, Carson City continues to expand in its downtown and Arrowhead/Airport submarkets. Users have dominated the office construction market with the major headquarters expansion projects of financial institutions and most notably the new 115,000-square-foot headquarters for Harley-Davidson Credit in Carson City’s Arrowhead Business Park.

During 2003, several companies signed sizable leases in Reno. The most notable of these include Covance Inc. at 55,000 square feet; Bally Gaming Inc. at 35,000 square feet; the law firm of Hale, Lane, Peek, Dennison and Howard at 30,000 square feet; and Sierra Design Group at 20,284 square feet.

During the past year, office lease rates in Reno have risen as vacancy rates decreased, falling from a high of 14 percent in 2002 to a projected single-digit figure by year end. New Class A vacancy rates will stabilize between 4 and 5 percent. Upon delivery of new product, rents will range from $2 to $2.30 per square foot for full-service Class A space and $1.80 to $2 for Class B garden-type space.

As construction continues on the US-395 bypass connecting Reno and Carson City, major office developers are eyeing all existing and proposed off-ramps for potential sites. US-395 will not only increase area access and decrease commute times, it will also provide room for expansion as several major office and retail centers are being planned along this route.

The Lake Tahoe market is largely tourist and gaming related. Like the many Nevada gaming properties that have been renovated, the city of South Lake Tahoe has recently undergone a major redevelopment along its commercial corridor. An approximately 35,000-square-foot renovation of an office center was completed at Round Hill, home to anchor tenant Tahoe Regional Planning Authority. The small town of Incline Village located on the Nevada east shore has a robust hi-tech, research and development segment, which accounts for the primary office use in that area. Other office uses in the Tahoe Basin primarily relate to medical, professional and governmental uses. “While the office market is very limited at Lake Tahoe, the quality of space and exceptional locations and views are without compare,” says Johnson.

The Reno-Lake Tahoe area has recently been named one of the top 20 places to live and work in publications from Forbes Magazine and The Wall Street Journal to Outside Magazine, asserts Johnson. “For those of us with deep northern Nevada roots, we have known this for years. Now it seems that the rest of the country knows it also,” he adds.

— Thomas Johnson is a broker at Sperry Van Ness/Gold Dust Commercial Associates in Carson City, Nevada.

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