In the first quarter of 2014, we wrote two posts about the four typical phases of the real estate cycle: Recession, Recovery, Expansion and Oversupply. All commercial real estate markets experience these phases and our market is certainly no exception. In fact, northern Nevada’s real estate cycles tend to be very dramatic indeed. Our market tends to swing strongly in both directions; boom or bust, so to speak, which is no stranger to Nevada economics.
Our previous post detailed the fact that “the recovery phase was upon us” and noted that the big box users had absorbed the remaining long vacant facilities, hitting huge home runs with extended free rent periods and bargain rental rates as well as securing long term, excellent Class A locations. While these transactions had relatively big impacts on the vacancy rates, things got much more sedate relatively quickly. The assessment of being in the recovery phase was accurate, and in hindsight we can say that we were in the early portion of the recovery phase.
As our recovery continues to unfold, we are experiencing a high degree of all of the economic factors that define a commercial real estate recovery. These include:
broad-based growth of demand
landlords being more selective rather than chasing every possible deal
eroding inventory
broad-based balanced supply/demand
increased investment interest in commercial real estate with significantly lowered cap rates
rising prices that are now the norm
shrinking lease concessions
new speculative construction becoming typical
certain investors begin to divest selected assets to cash in on the low cap rates
developers with nothing coming out of the ground feeling they are missing the boat
All of these factors are in place at this time in the Reno/Sparks industrial real estate market, with solid demand across all property size ranges. We detail all the specifics of current market velocity with quarterly updates in our free Market Advisor. To view the most current edition, visit our Resources page and scroll down to “2015 Northern Nevada Market Reports.”
A follow-up question to “Where are we in this real estate cycle?” is often, “How far into the recovery cycle are we?” That’s hard to tell, but my bet is that, barring any unforeseen factors, our area will continue to experience very similar economic conditions well into the 2017 timeframe.
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