Industrial Projects Transforming Nevada
May 1, 2024 By Kathleen Foley
Industrial projects at both ends of the state, especially big-box warehouse and distribution facilities, are playing a pivotal role in diversifying Nevada’s tourism-dependent economy. Large tracts of empty land are being transformed into industrial parks and high-tech hubs that increasingly attract out-of-state companies seeking proximity to West Coast markets without high costs and burdensome regulations.
Labor Logistics Location
“The market dynamics in Nevada are really good,” said Keith Earnest, executive VP of VanTrust Real Estate, which is developing Vantage North on 350 acres in North Las Vegas. “24 percent of the U.S. population is within a 2-day drive of Nevada, which makes it a very attractive option for anybody in an e-commerce business.”
Speed to market is key, according to Earnest. “You can get a building up and going here in half the time it would take in California,” he said. “Plus, the labor market in Nevada is fantastic. We need employees who can work in sophisticated warehouse systems. It’s not just somebody driving a forklift anymore. The employment base in Nevada for these types of jobs is really strong. The old real estate adage was ‘location, location, location.’ Now it’s ‘labor, logistics, location.’”
Northern Nevada is also enjoying a boom in industrial projects. Beki Dobson, vice president/industrial specialist at Miller Industrial Properties, said Reno is known for being a business-friendly city. Her firm provides tenant representation services for local companies as well as companies expanding to Reno-Sparks. “A quick search will show you that companies like Tesla, Switch, Microsoft, Amazon, Zulily, Patagonia, and Urban Outfitters all have business locations in Reno and the surrounding areas,” she said. “We have a favorable tax climate, the ability to reach 60 million customers overnight with one-day trucking, commercial utility rates that are more than 50 percent lower than California, and tax incentives for businesses that expand to Nevada. Businesses want to be in Nevada and developers want to build where the business is.”
Demand Still High Despite Constraints
Industrial experts agree that demand for industrial space continues to outpace supply in most product types. Chris Lexis is a principal at Avison Young, an international commercial real estate company. His team is currently leasing the Nancy Jay industrial project in Henderson, as well as a 330,000-square-foot project for Dermody Properties in North Las Vegas. “We expect 15-16 million square feet of industrial to be delivered by the end of this year,” he said. “On the leasing side, there’s been some slowdown, but it’s still humming along and vacancy numbers are still strong.”
Industrial in northern Nevada has been growing by leaps and bounds over the last decade and shows little signs of slowing its pace. “In the last 10 years, the northern Nevada industrial market has increased by 39.7 million square feet, which is a 55 percent increase in market size,” said Dobson. “Even with that kind of rapid growth, we are still seeing positive absorption as these buildings are being filled – some leased before they have a roof on.”
Larry Monkarsh is managing member of LM Construction Company, a design-build firm currently working on several industrial projects in southern Nevada. He said developers are challenged with trying to make projects pencil, given current market conditions. “Whether a project will make sense economically is dependent on three factors: land, construction costs, and financing,” he said. “Land constraints are the big problem right now, and especially land prices. Construction costs are leveling out, but they’re not going down. The cost of financing and interest rates aren’t going down either. If you’re paying top dollar for land, your interest rates are high, and construction costs aren’t coming down, it’s hard to make a project pencil.”
The market has softened a little, according to Earnest. “That’s the cyclical nature of business,” he said. “It ebbs and flows. The interest rate now is more than double what it was a couple of years ago, so carrying costs are eating away at profits. Construction loans are a little harder to get. There have been a lot more headwinds in the last 12 months, so you’ll see actual development slow down, which is fine. That lets us catch up with demand.”
When it Comes to Supply and Demand, Size Matters
Because of the demand in recent years for large industrial centers by logistics, warehousing, and high-tech firms, developers have provided the super-sized buildings these clients want. However, smaller clients are often priced out of the market or are unable to find a small space to fit their needs at any price.
“A few years back, we had a shortage of large developments that could accommodate the influx of businesses to northern Nevada,” said Dobson. “Construction has caught up to fill this demand, but I do still see an unmet demand in northern Nevada for industrial properties that don’t fall within the big-box product. The market for 40,000 to 65,000 square feet is softening a bit, but it is still very competitive, with fewer options available than other size ranges.”
She reported that northern Nevada is also experiencing a shortage of small products with dock-high doors and yard space because the profit margin for that type of building is lower. “In addition, there’s a shortage of purchase opportunities for owner-users,” she said. “Almost everything in the Reno market is an investment property that is leased. It’s rare to find a property you could move into as an owner-user.”
Southern Nevada faces a similar situation. “No one is building small, grade-level industrial buildings (those with no loading dock),” explained Monkarsh. “Office/warehouse buildings from 2,400 to 4,000 square feet are also in high demand. Small tenants don’t have affordable options for leasing space, and smaller buildings for sale just don’t exist in southern Nevada.”
Lexis predicted the market will eventually adjust. “There’s been a lot of demand for properties under 200,000 square feet and not many are readily available now,” he said. “However, we have a lot of space being delivered. Developers of big boxes who didn’t want to subdivide will eventually start to divide and make spaces available to smaller tenants.”
The Big Three: Apex, TRIC, El Dorado Valley
Three large developments represent both the opportunities and the challenges associated with industrial in Nevada. Apex, an 18,000-acre industrial park, is located in North Las Vegas about 26 miles northeast of the Las Vegas Valley along I-15. The park has nearly 15 million square feet of projects either planned or currently under construction. Although development started about 30 years ago, it has faced major challenges due to the cost of bringing infrastructure to the site.
“The biggest challenge in Apex is infrastructure,” said Earnest. “The City of North Las Vegas made a big investment by putting in a water line to Apex in 2018-2019. Their foresight showed folks where the next path of growth could be.” In February of this year, the city announced it was partnering with the Southern Nevada Water Authority in a $250 million water line and wastewater system that will link Apex to the valley’s recycling system. So, the future looks brighter for Apex than it’s been in a long time.
Northern Nevada has had fewer challenges developing industrial in outlying areas, partially because water is easier to access. The massive 107,000-acre Tahoe Reno Industrial Center (TRIC), which began development in 1999, encompasses a developable 30,000-acre industrial complex located in Storey County approximately nine miles east of Reno-Sparks on the 1-80 freeway. “TRIC is the largest industrial park in the world,” stated Dobson. “In addition to being a tech hub for companies like Tesla, Google, Switch and Blockchains, it also has a large distribution presence. Expedited grading and expedited building permits, as well as roads and utilities already in place, have been a huge draw for companies relocating to northern Nevada.”
The future of industrial development in southern Nevada may well be in an area that’s just now getting some interest. The city of Henderson annexed 2,738 acres of land in El Dorado Valley in 2022, and plans are underway for several industrial projects at the site southeast of Las Vegas and southwest of Boulder City. Amazon has purchased 300 acres for future use and DIV Industrial has acquired 94 acres of land for a project called El Dorado Valley Logistics Center. The 1.7 million-square-foot center will feature two buildings, ranging in size from 600,000 square feet to 1 million square feet.
“All three of these projects are born out of necessity,” said Dobson. “Developing in the outlying areas has allowed national and worldwide businesses to have a west coast presence in a highly business-favorable state.”
Leasing activity: Going the Speed Limit
“During the pandemic and right afterwards, we were travelling at 120 miles per hour and we couldn’t keep up,” said Monkarsh. “Now we’re going the speed limit, which is more sustainable. We’re continuing to see decent leasing activity, mainly due to the influx of companies from California. The supply has started to slow down. Buildings from 20,000 to 100,000 square feet will remain strong, but what I call ‘normal strong,’ not what we’ve been experiencing lately.”
Lexis also predicted relief from the current frantic pace. “What’s in the pipeline and what’s permitted now will be delivered in 2025, but not much will happen in 2026,” he said. “Developers need to complete current projects, then it’s going to be quiet on the development side for a while. When they do get going again, it will take several months to get projects re-zoned, permitted and financed. Over the next couple of years, we’ll be fine. You won’t see vacancies shoot up drastically. What I’m seeing now is that leasing activity is looking healthy and we don’t have to worry about over-building.”
In northern Nevada, forecasts for leasing activity over the next couple of years still remain positive, according to Dobson. “Market activity is in a slight slowdown currently, but analysts and market experts across all firms remain optimistic that leasing will continue to increase starting in Q3 2024 and into future years,” she stated.
Will Nevada Run Out of Land?
No one who has driven across Nevada would claim that the state is running out of land – unoccupied land can stretch for miles in every direction. However, appearances can be deceiving. The federal government owns more than 81 percent of the land in Nevada. And what remains is far away from water and may be cost-prohibitive to develop.
“The question is not what happens when Nevada runs out of land,” said Monkarsh. “It’s what happens when we run out of affordable land. To solve the land constraint problem, the federal government will have to let the BLM release more land. Clark County Department of Aviation also holds a tremendous amount of land that they can auction.”
Dobson does not foresee northern Nevada running out of affordable land in the near future. “Northern Nevada has expanded its boundaries in the last decade in all directions of Reno proper,” she said. “Expanding south of Reno, there’s the issue of being farther from I-80 for east-west travel, but we don’t have a water shortage, which makes developing into outlying areas more feasible.”
Lexis is optimistic about southern Nevada’s ability to build industrial for the immediate future. “We have a lot of industrial land in southern Nevada,” he explained. “The City of Las Vegas has huge holdings near the Las Vegas Paiute Golf Resort that may go industrial. El Dorado Valley is still in its infancy. At Apex, there are thousands of privately owned acres, and we’re just starting to tap into that. If we keep facilitating these land auctions, we’ll grow just fine. It’s good that they don’t release thousands of acres at once, because that would bring down rates. I’m not worried about land constraints. I’ve been doing this for 21 years and I can tell you that in the next 20 years we’re not even close to tapping into what’s to come.”
Read the article at Nevada Business Magazine here.
Filed Under: Building Nevada
Tagged With: Avison Young, Beki Dobson, Chris Lexis, Keith Earnest, Larry Monkarsh, LM Construction Company, VanTrust Real Estate
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