Trends 2010 - trends in commercial real estate in northern Nevada

Commercial Real Estate Trends 2010 Presentation Summary

On February 1 Colliers International hosted our annual "Trends 2010" event with over 425 local professionals in attendance. Here is a brief synopsis of each of our core market specialties:

Investments: Floyd Rowley, CCIM, CPA
2009 was a difficult year for investors. The 10-year Treasury continued to have little influence on investment sales. Economists do not expect Inflation to re-appear until after 2010. CMBA lending volume has slowed to a trickle, although lenders appear to be slowly re-entering the market. Investments sales nationally were very week in 2009, reflecting investor's uncertainty and lack of product priced to attract buyers. Distressed sales did spread from land to the entire investment world. High debt service, maturing loans, increased vacancy and reduced rents will continue in 2010 with owners capitulating and REO actively being dumped from lender's balance sheets.

Office: Melissa Molyneaux, CCIM
Looking back historically, Reno office real estate has been through cycles before. To determine the health of Reno-Sparks, Colliers worked with the Center for Regional Studies and used a "Coincident Index". Each recessionary period was followed by a period of construction. The current recession, which began in the summer of 2007, had pushed the office vacancy to an historic all time high since the Reno/Sparks market has been tracked. A bright spot in the "Coincident Index" is our region appears to have pulled out of the recession in September of 2009. However, we will not feel the turnaround immediately. It is estimated that it will take approximately four years with no new construction at normal absorption levels to return to a balanced market of 10% vacancy. Construction in 2009 was minimal, totally 33,500 square feet. 2010 Construction is expected to be flat as excess inventory is absorbed. Net absorption will be flat or slightly positive and vacancy should remain flat. As many are saying, "Flat is the new up".

Retail: Rick Casazza
Northern Nevada retail continues to show softness. According to the National Association of Realtors, the national retail vacancy rate at the end of 2009 was 12.6%. Northern Nevada was not so lucky. At the end of 2009, total vacancy registered 16.4%, an all time high! 2009 saw significant Retailers closed their doors in the Northern Nevada market that included Gottschalk's, Circuit City, Longs Drugs and Sports Authority amount many others. 2010 has not started well either with the closing of Safeway at Firecreek Crossing, four Hollywood Videos and on Bully's already adding 80,000 square feet back to the market. Rents are down from $1.85 to $1.71 per square foot. There are some bright spots as holiday same store sales for December 2009 rose 2.8% over 2008. Marshalls, TJ Max, Costco and Ross reported double digit increases. Despite the difficult economy, developers continued to build or remodel existing centers. Also, Northern Nevada is starting to see a bit of back filling is some of the vacancy big box stores. In 2010 we can expect absorption to remain flat with new construction at a standstill. Vacancy rates will be moving up and lease rates moving down.

Industrial: Mike McCabe, SIOR
The Theme for 2010 is basic: Business Retention and Customer Service. 2009's industrial real estate market saw several top companies closing or reducing their Northern Nevada footprint shedding jobs and putting space on the market for sublease. The resulting impact to the market lead Northern Nevada's industrial real estate to the highest vacancy ever recorded at 15.3%. Sellers in the market had to get used to a new reality of decreased values, bargain minded buyers with limited access to acceptable financing sources. From an absorption perspective, three of four quarters last year shown negative absorption with the third quarter 2009 having modest positive absorption of just 111,000 square feet. 2009 construction activity saw only a few build to suite projects which will continue through 2010 with two small build to suites projects currently underway. Although things seem bleak now, Northern Nevada is positioned better than ever to capitalize on the coming recovery with several class "A" industrial spaces with all of the modern amenities an industrial user could want. With amazing amenities and a pro business climate Northern Nevada is poised and positioned to capitalize on the pending recovery. For 2010 we expect vacancy to remain high but slowly decrease by year's end. Absorption will level and slowly record positive results. Construction will remain slow with no speculative building. Rents have stabilized and will see a "SLOW" rise in the latter half of 2010.