The northern Nevada office market has not seen any new development exceeding 10,000 square feet in nearly a decade. What has been built has been build-to-suit product with tenants already in place before dirt is moved. Speculative construction in the office market has been halted for some time. In fact, northern Nevada has not seen a speculative office project since 2008.
Between 2006 and 2010, the market experienced a steady increase in vacancy rates. From 2010 through most of 2012, lease rates continued to drop. Developers could not construct a building and lease it for the costs of development. The result was that tenants were limited to pre-existing buildings, though rents were lower. While vacancy rates began to drop in 2010, lease rates did not see an increase until nearly the end of 2012.
Now that we are past one of the most significant economic downturns in our history, lease rates have begun to approach the level to warrant new construction. Tenants are going to begin to see more options as demand continues to grow and ground up projects are now feasible for developers and tenants alike.
As always, some submarkets in the area are stronger than others and speculative building is beginning to pencil for property owners and investors. The Kietzke corridor has continued to be one of the most dominant submarkets for office users. This area continues to have lower vacancy rates over time, in good market conditions and not so good market conditions.
In fact, plans are moving forward on the first speculative office product to be built in northern Nevada in more than 7 years in the Mountain View Corporate Center. The center is located past the roundabout at the south end of Kietzke Lane. The site has freeway visibility, the space to accommodate needed parking and the surrounding buildings (all Class A) are some of the best quality in the market.
McKenzie Properties will break ground late summer on a 40,000 square foot speculative office building on the 5.5-acre parcel next to the City National Bank building. This area will remain one of the most desirable sub markets in town and we believe there will be significant tenant demand in Mountain View Corporate.
The new Class A building is scheduled to be complete in July of 2016. It will be four stories with a view of Evans Creek and the surrounding mountains. Finishes will reflect the same high quality as the surrounding product.
Not only can we expect to see more and more additions to the inventory in the office market, it is truly a market signifier to see speculative development begin. Confidence in the northern Nevada commercial real estate market is higher than it has been in a decade and the result will be more and more movement and construction in 2015 and 2016.