Northern Nevada’s office market saw strong tenant demand, recovering sale volumes and swelling sublease availability in Q3 2022. After five consecutive quarters of positive demand, third quarter net absorption of 54,700 square feet pushed annual net absorption to nearly 100,000 square feet. Investment activity rebounded this quarter to $43.5 million, though average price per square foot has declined slightly.
While work from home trends have not impacted the Reno office market as much as other major markets, many companies have continued to release some of their excess square footage to the sublet market as they reevaluate their necessary office footprints. Available sublease space accounts for nearly one-quarter of all available space on the market this quarter. New speculative construction broke ground this quarter at Renown South Meadows, a new specialty care center which is slated to deliver more than 120,000 square feet of Class A medical office space to the South Meadows submarket. Renovations continue at Panasonic’s new building at 645 E Plumb Lane, the Oddie District, Reno Public Market, and Reno City Center.
With Reno’s continued positive net absorption trends despite growing sublease availability, and recovering investment activity, the remainder of the year should see steady leasing and sales activity as northern Nevada’s market fundamentals continue to improve.
Last quarter’s rather cool net absorption number did not cause a panic in the office market, as demand rebounded in the third quarter to 384,600 square feet. This sent vacancy to a new post-Great Recession low of 11.7%. Asking rental rates increased to $2.42 psf on a full-service basis.
Despite the technical recession and claims that in-person office work was a thing of the past, southern Nevada’s office market has now posted three quarters of post-lockdown recession expansion. The big test for this expansion comes as over a half-million square feet of class A office space is poised for completion along the I-215 beltway. This is the largest expansion of class A office space in the Valley in more than a decade. While class A vacancy has remained stubbornly high since the Great Recession, it has been clear for some time that demand for such office space on the west side of Las Vegas has been unfulfilled.
Southern Nevada’s should see strong net absorption in the fourth quarter, provided economic headwinds do not get in the way. The completion of new office space could add as much as 208,000 square feet of vacant space to the market, so it is possible overall vacancy will increase at year’s end. This uptick should not mar the otherwise very impressive performance of the office market in 2022.