Northern Nevada’s Current Phase in the Real Estate Cycle

We recently posted about the four typical phases of the real estate cycleand we very briefly touched on which phase we’re currently in. But there’s certainly more to be said, and that is the purpose of today’s post.

I’m sure we can all agree that there has been a recessionary phase gripping the market for the past few years. Here’s how our area fit the criteria we outlined in the last post for that dismal phase:

1. Properties are readily available with high vacancies and cheap prices. Value is everywhere. Did this apply not too long ago? Absolutely.

2. There is minimal demand. Applicable over the past few years? Yes.

3. Everything is negative in the media. That was certainly true.

4. There is fallout with builders, developers, real estate agents, even lenders failing and going out of business. This is very true; we all probably know firms and people who were victims of the recession.

5. While many investors see great opportunity in undervalued assets, most resist the urge to buy, which further drives already low prices down to rock bottom. If I had a nickel for everyone who told me, “We’re not at the bottom yet!”

6. Construction is zero. Think about it – can you think of any new construction in the past three years? Not likely.

Clearly, all of this was quite familiar for far too long in northern Nevada and much of the country. But today it’s different. Things are picking up. Demand in the big box size range has almost consumed the entire stock of inventory, actually prompting new speculative construction. Build to suit projects are under way, with a new 700,000+sf facility for Zulily coming out of the ground and San Mar building its new 600,000+ sf facility in Spanish Springs later this year. A new 524,000 sf facility in Tahoe Reno Park was just completed and is almost full already.

All of this activity in the big box sector has rents rising and soon to close in on pre-recession rates. The vacancy rate of less than 9% now is a balanced market where landlords and tenants alike are finding negotiations markedly changed from 24 months ago. New rent rates make conversations about new speculative construction a subject under consideration by the large investment trusts seeking a market presence.

By definition, northern Nevada’s recovery phase is underway. But as our previous post noted, there are no precise road signs or alerts as we pass through these phases. There is always debate, speculation and disagreement. That’s why some investors do better than others. But the prevailing attitude in the area is that the recovery phase is clearly upon us. Be thankful to have survived the worst recessionary phase since WWII.