Research & Forecast Report RENO INDUSTRIAL Q3 Sublease Space Thwarts a Good Quarter > > Overall vacancy rate rose to 10.95% (without sublease space 8.16%) > > New construction completions totaled 626,000 SF > > Gross absorption 1,425,099 SF; Net absorption (1,071,058) SF The rise in vacancy is due primarily to a 1.5 million square foot building coming available for sublease. Previously occupied by Kmart, this building can be demised into segments as small as 124,800 square feet. Considered a Class C building, this property is positioned to be a low cost alternative to those looking for a discounted rent. The building is available for sublease, with Sears as the sublessor, for the next few decades. Availability for tenant improvements and splitting of utilities has yet to be determined. This building is the second largest building in our market today and significantly skews the vacancy numbers. Market Indicators Unemployment Rate Nevada 6.7 % Market Indicators Relative to prior period Q3 Q4 * NET ABSORPTION COMPLETIONS RENTAL RATE *Projected 10-Year Nominal Interest Rate National Consumer Confidence 2.06 103.0 Historical Vacancy Rates and Asking Lease Rates Overall Asking Rents Per Square Foot Previous Quarter Current Quarter Warehouse $0.30 $0.32 15.0% $0.60 Distribution $0.32 $0.34 12.0% $0.50 Flex $0.52 $0.55 9.0% $0.40 6.0% $0.30 Summary Statistics 3.0% $0.20 Q3 Reno Market Q2- Q3- Vacancy Rate 8.8% 10.9% 0.0% Vacancy Rate 3Q Asking Rental Rate 3Q $0.10 Asking Rent (PSF, FSG) $0.36 $0.36 The Reno industrial market continues improving, supported by the continued tilting of walls at properties under construction. Net Absorption (SF) 840,141 (1,071,058) New Completions (SF) 580,660 626,000
The Kmart space represents 2.0 percent of our total market size and roughly 22.0 percent of our total market vacancy. Taking out just the available Kmart building (1,556,709 SF), the market availability registers at a healthy 8.95 percent. TOTAL MARKET SIZE TOTAL % DIRECT W/O KMART SUB-LEASE W/O ALL SUBLEASE SPACE 10.95% 8.95% 8.16% TOTAL SF 77,748,447 6,346,247 2,165,188 8,511,435 There were 45 transactions for the quarter with some notable leases finalized. New Construction New construction completions include two Dermody Properties buildings in Golden Valley. One building is 402,000 square feet and the other is 224,000 square feet. Panattoni is working on finishing up their Red Rock 200 (200,000 SF) with an end of completion date and has broken ground on an additional 707,660 square feet in North Valleys. Dermody is breaking ground on a 721,000 square foot building on the corner of Military Road and Lemon Valley Drive with a tenant in tow for 271,000 square feet that is targeted for Q2 2016 completion. Panattoni had a marketing event in early October to showcase their new development in North Valleys (off of US 395) which will deliver a 707,660 square foot and two 367,100 square foot speculative buildings. The first building will be divisible to 162,240 square feet and completion is expected in Q2 2016. Avenue 55, previously Tarragon, will break ground on a 400,000 square foot building divisible to 50,000 square feet spaces to accommodate demand for smaller Class A space within the marketplace. We expect to see other projects with similar intentions in the near future. Smaller development opportunities, under 100,000 square feet, remain financially unsuitable given the current construction costs and associated asking rents. However, a severe tightening of space in the market could get developer s attention. Historical Net Absorption vs. Completions 2000000 1500000 1000000 500000 0 (500000) (1000000) (1500000) Historical Gross Absorption vs Net Absorption 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 - Net Absorption Historical Vacancy 18.00% 16.00% 14.00% 12.00% 2001 2002 2003 13.21% 2004 2005 2006 3Q BTS 2007 New Completions 2008 New Spec. 15.58% 15.54% 2009 2010 14.70% 2011 13.90% 2012 3Q 10.95% While we ve been reporting quite a bit of new construction, especially big box, one might get the impression development is out pacing demand. However, given what is on the market, it will take just one or two large deals (+400,000 SF) to justify continuing the trend to build big box Class A. Market Highlight After three healthy months of absorption in spaces under 100,000 square feet, the market now has a shortage of Class A options available. Specifically, only sixteen vacant Class A spaces exist within the marketplace today. Nine of those available are over 100,000 square feet and most of these were not originally constructed to be demised to 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 7.14% 5.46% 2005 2006 2007 9.40% 2008 2009 2010 2011 9.22% 2012 8.60% 2 Reno Research & Forecast Report Q3 Industrial Colliers International
smaller units. Thus, only 14.0 percent of the total vacancy in 20,000-100,000 square feet is Class A. The shortage of space under 100,000 square feet will continue, especially in the 20,000-50,000 square foot range, until rents can justify new construction. Rents for existing spaces for new construction under 100,000 square feet will continue to push upward for the foreseeable future. Existing product continues to get gobbled up and some submarkets, specifically the Airport and South Reno submarkets, are almost out of space above 10,000 square feet. 1455 South Meadows Sold for $4,000,000 Manufacturing Manufacturing interest remains vibrant. While Telsa and Switch continue their construction and commitments to the area, there are many new noteworthy announcements. Angie s Artisan Treats, maker of Boom, Chicka, Pop popcorn and other healthy snacks, took 52,000 square feet at 1025 Sandhill Drive. Indy Hanger manufactures wire coat hangers and took 48,800 square feet on 750 Spice Islands. BI Nutraceuticals took down 140,000 square feet at 675 Waltham Way. If they are unable to find existing product in the market, manufacturers are accustomed to building their own facilities to meet their needs. Deceuninck North America is expected to close on a 28 acre site in Fernley and is in design and permit on a 130,000 square foot manufacturing facility for vinyl window frames. AZZ Galvanizing will be investing in their 43rd facility nationwide in the Tahoe Reno Industrial Center (TRIC) for steal galvanizing. Aqua Metals intends to recycle lead acid batteries and will also be putting down roots in TRIC in 2016. 9240 Prototype Drive Sold for $2,500,000 Tours from California manufacturers are also vary active, each citing the California business environment as primary factor. In the past, most were also considering Texas but that seems to have stalled as many smaller manufacturing businesses recognize they prefer to remain closer to family. Building sales for owner/users and investors are still very active. However, product seems to be evaporating quickly for these groups. We anticipate more groups will begin construction if they can t find what they need in 2016. 543 Overmeyer Drive Sold for $2,380,000 Historical Built-to-Suit vs. New Speculative Buildings 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - (1,000,000) 2005 2006 2007 2008 2009 2010 2011 2012 (2,000,000) (3,000,000) Net Absorption Gross Absorption 3 Reno Research & Forecast Report Q3 Industrial Colliers International
395 Significant Industrial Sale Activity NORTH VALLEYS 543 Overmyer Road, Sparks, NV 28,800 SF - $2,380,000 $159.30/SF September SPARKS 380 S Rock Boulevard, Sparks, NV 30,000 SF - $1,275,000 $42.50/SF September 80 80 CENTRAL/WEST RENO AIRPORT I-80 EAST CORRIDOR 4058 South McCarran Boulevard, Reno, NV 13,296 SF - $1,250,000 $94.03/SF July 9240 Prototype Drive, Reno, NV 46,237 SF - $2,500,000 $54.07/SF August 395 SOUTH RENO 1445 South Meadows Parkway, Reno, NV 52,715 SF - $4,000,000 $75.88/SF August Significant Lease Activity PROPERTY ADDRESS SALE DATE SIZE SELLER/BUYER TYPE 2777 USA Parkway, Sparks NV August 160,000 SF Jet.Com Distribution 10881 Lear Boulevard, Reno NV July 153,000 SF TAGG Logistics Distribution 625 Waltham Way, Sparks NV August 140,000 SF Bi Nutraceuticals Manufacturing 350 Lillard Way, Sparks NV July 13,450 SF OHL Distribution 1381 Spice Islands Drive, Sparks NV July 126,68 SF US Cabinets Manufacturing 4 Reno Research & Forecast Report Q3 Industrial Colliers International
Market Comparisons - Reno INDUSTRIAL MARKET TYPE BLDG TOTAL INVENTORY DIRECT VACANT SF DIRECT RATE SUBLEASE VACANT SF SUB RATE TOTAL VACANT SF RATE TOTAL NET ABSORPTION CURRENT QTR NET ABSORPTION YTD COMPLETIONS SF UNDER CONSTRUCTION SF ASKING RENT AIRPORT SUBMARKET Total 140 8,898,038 312,843 3.5% 111,563 1.3% 424,406 4.8% 388,868 410,309 - - $0.34 CENTRAL & WEST RENO Total 462 1,249,677 91,521 7.3% 13,800 1.1% 105,321 8.4% 40,608 (55,801) - - $0.34 NORTH VALLEYS Total 245 16,182,604 1,444,581 8.9% 70,070 0.4% 1,514,651 9.4% 16,085 449,049 626,000 1,628,660 $0.34 SOUTH RENO Total 161 8,811,540 201,351 2.3% - 0.0% 201,351 2.3% 47,911 316,185 - - $0.38 SPARKS Total 164 28,106,651 1,943,648 6.9% 1,800,728 6.4% 3,744,376 13.3% (1,708,503) (954,941) - 400,000 $0.36 I-80 EAST CORRIDOR Total 177 14,499,937 2,352,303 16.2% 169,027 1.2% 2,521,330 17.4% 143,973 103,291 - - $0.31 MARKET TOTAL TOTAL 1,349 77,748,447 6,346,247 8.2% 2,165,188 2.8% 8,511,435 10.9% (1,071,058) (1,261,362) 626,000 1,428,660 $0.36 QUARTERLY COMPARISON AND TOTALS Q3-15 1,349 77,748,447 6,346,247 8.2% 2,165,188 2.8% 8,511,435 10.9% (1,071,058) (1,261,362) 626,000 1,428,660 $0.36 Q2-15 1,348 77,122,447 6,651,645 8.6% 162,732 0.2% 6,814,377 8.8% 840,141 (190,304) 580,660 - $0.36 Q1-15 1346 75,771,137 6,118,487 8.1% 184,721 0.2% 6,303,208 8.3% 499,009 499,009 300,000 - $0.36 Q4-14 1345 75,471,137 6,182,014 8.2% 320,203 0.4% 6,502,217 8.6% (73,936) 2,463,414 200,000 2,651,000 $0.36 Q3-14 1344 75,271,137 5,943,381 7.9% 284,900 0.4% 6,228,281 8.3% 506,405 2,537,350 1,230,000 200,000 $0.35 Q2-14 1342 74,041,137 5,158,733 7.0% 345,953 0.5% 5,504,686 7.4% 1,620,825 2,030,945 777,250 - $0.34 5 Reno Research & Forecast Report Q3 Industrial Colliers International
502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 $2.3 billion in annual revenue 1.7 billion square feet under management 16,300 professionals and staff COLLIERS INTERNATIONAL RENO 100 West Liberty Street Suite 740 Reno, Nevada 89501 USA +1 775 823 9666 www.colliers.com/reno MARKET CONTACTS: Tim Ruffin, SIOR Managing Director & Executive Vice President Reno +1 775 823 9666 tim.ruffin@colliers.com Melissa Molyneaux, SIOR, CCIM Managing Director & Vice President Reno +1 775 823 9666 melissa.molyneaux@colliers.com CONTRIBUTING AUTHORS: Greg Shutt, SIOR Vice President Reno +1 775 823 4667 greg.shutt@colliers.com Chris Fairchild, CCIM Vice President Reno +1 775 823 4662 chris.fairchild@colliers.com About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,300 professionals operating from 502 offices in 67 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. For the latest news from Colliers International, visit Colliers.com or follow us on Twitter (@ColliersIntl) and LinkedIn. colliers.com Copyright Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.