Retail rebound coming on heels of industrial growth
July 31, 2013
The commercial real estate market in Carson City is beginning to bounce back, led by increasing demand for retail space, a more stable industrial sector and an office segment that's likely to stir back to life later this year.
"Industrial picks up first. Then those workers stimulate demand on retail," says Brad Bonkowski, a broker at Coldwell Banker Commercial Premier Brokers in Carson City. "It's a normal cycle. Later this year, we'll see the office as the last segment to come around."
Vacancy rates for industrial property in the capital area have dropped to 8 percent, a healthy, balanced market. Rates in the retail space are creeping downward, too. Coldwell Banker hasn't updated its 2011 report, but Bonkowski says vacancy rates for retail are now lower than the 17.8 percent posted then, which was a 2 percent improvement from 2009. The office vacancy rate in 2011 was 17.93 percent.
Lease rates for retail space haven't changed much, though, and are still stuck in the last decade, say area brokers.
"Rents are still low. Starting rents are what we were getting 10 to 15 years ago," says John Uhart, owner and broker at John Uhart Commercial Real Estate Services in Carson City.
Uhart says retail lease rates range between 80 cents to $1 per square foot per month plus common area maintenance fees. He says landlords have also been offering generous tenant improvement allowances, writing off the cost rather than amortizing it over the life of the lease.
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Bonkowski says the extras like tenant improvements and a few months free rent are the first to go now that interest is picking up.
"Concessions are going away quickly," says Bonkowski. "Landlords aren't willing to give away space and hope they break even."
Some of the city's long-empty properties are finally filling up. The biggest, widely-known but yet to be announced deal is the anchor space in the Carson Mall. The indoor mall lost its biggest tenant, Gottschalks department store, several years ago and has been somewhat buoyed by the addition of a few eateries, especially the busy Paul Schat's Bakery. Now, a retailer reportedly has leased 42,000 square feet of the 70,000 square foot anchor space and plans to open there in the first quarter of next year. According to Bonkowski, a second retailer is ready to sign on for the remaining 28,000 square feet and plans to open in the mall in the third quarter of next year.
Several new restaurants are coming in, too, including two Jimmy John's Gourmet Sandwiches franchises, one in new construction on North Carson Street and another in vacant space near the Raley's grocery store on South Carson Street. Near there, next door to J.C. Penney's, space is being refurbished for Ross Dress Less for Less, which is relocating its clothing outlet from its current spot near the Target store in Douglas County. A new restaurant may soon be going in 2,000 square feet on Topsy Lane, at a pad in the mall that houses the Best Buy consumer electronics store.
"We were excited to get that listing about 12 months ago," says Gary Moreira, broker with Cushman & Wakefield in Reno. "But it's been a struggle for the in-line stuff. Finally, we got three strong prospects and I'm starting to think maybe it is picking up a little bit."
Other long-vacant spots, though, continue to languish. Larger restaurant spaces, such as the stand-alone $500,000, 4,411-square-foot building on North Carson Street that long ago housed a Sizzler steakhouse, are still on the market. And Moreira says he has had little luck finding a new user for the South Carson Street building that formerly featured a Sparky's sports bar.
Coldwell Banker's Bonkowski says each case is unique, though, and not a reflection of the market as a whole. He says, for instance, the owner of one major retail property on South Carson remains firm on too high a price. And the old Kmart building at the north end of town has 10 years left on a land lease, an uncertain future which makes it a difficult sell to potential tenants, he says.
"That is a complicated property that has underlying issues," says Bonkowski.
In terms of location, probably the most active area is Highway 50 East, where ramps on and off Highway 395 opened in the last couple years. Tractor Supply Co., a retail farm and ranch store chain with 1,197 locations, is building a store near Gold Dust West, and Lepori Construction is almost done with a Golden Gate Petroleum gas station and convenience store a few block east on the highway. A Dollar General discount store is soon breaking ground on property where an office building once stood.
Another good sign for the commercial market in Carson City is the reduction in foreclosure properties, which were keeping a lid on property values.
"When most foreclosed properties are bought then you start to come out of your recession," says Daniel Leck, owner of Daniel A. Leck & Associates, real estate appraisers in Carson City. "That's the case now."