DBB Holdings had owned Westridge Corners since the early 1990s but recently divested the property to reduce its management load.
The more than 330,000 square feet of retail construction and renovation underway in Reno is expected to create a “flight to quality” as Northern Nevada retailers jockey for position in emerging and gentrified retail submarkets.
Much of that development is older projects being renovated, such as Reno Public Market and The Oddie District in Sparks. New retail, however, includes the Reno Experience District at Plumb Lane and South Virginia Street, where more than 70,000 square feet of new retail is expected to come online.
Prealeasing is already underway, and prices are at or approaching an eye-popping $4 a square foot, said Steve Holm, senior vice president with the retail group at Colliers International in Reno. Holm does both sales and leasing of Northern Nevada retail properties and also owns four yoga studios in the San Francisco Bay Area.
“Four dollars a square foot is like Silicon Valley prices,” Holm said. “But I think we are going to grow into it, and rents will go up all around town. It is going to take a couple of years to get there, so if tenants can make it through the next year or two, they'll be fine.
“We are seeing all this new Class A and redevelopment of shopping centers, and we are going to have a flight to quality,” Holm added. “A lot of B- and C-center tenants are going to move to those nice new centers. Vacancy should go down on Class A and B (properties), but at Class C centers the vacancy will go up.”
The higher rents at RED and Reno Public Market likely will prove sustainable, he added, because tenants want to be a part of Reno’s gentrification. Tenants likely will sign leases at lower initial rental rates and pay built-in increases as those new shopping centers become more fully fleshed out and transition into the region’s hottest commerce and residential hubs.
Retail experienced some challenging times in 2020, but it saw a strong recovery despite masking and other requirements in place throughout most of 2021. Holm told the NNBW that average retail rents in Reno were around $1.70 at older shopping centers, but as tenants left the market and new ones emerged, landlords began pushing rents north of $2.25 per square foot.
Many landlords who own older Class C properties should consider selling to opportunistic and value-added investors, Holm added.
“They can sell to someone who wants to put money into it and redevelop it and make it a Class B center where they can land some new tenants and raise the rental rates. There are a lot of opportunistic buyers who look for that stuff to give it a good facelift,” he said.
The timing recently was right for one longtime retail broker/owner to divest an older property. Jack Brower, senior advisor at SVN Gold Dust Commercial Associates, last quarter brokered the sale of Westridge Corners at Mae Anne Avenue and Sierra Highlands Drive for $9.9 million.
“We self-manage all our properties, and the management load was getting high,” Brower said. HolmThe seller, DBB holdings, will reinvest those funds regionally, Brower said. DBB Holdings had owned the property since the early 1990s and was seeking to reduce management duties across its portfolio, Brower said. The holding company plans to reinvest sale proceeds into one or two single-tenant assets, he added.
Westridge Corners consists of ground-floor retail anchored by Bully’s, Pizza Plus and Sushi Rose, while second-floor spaces are all full-service offices – Port of Subs has had its corporate headquarters at the plaza for more than two decades.
Reinvestment opportunities could prove difficult to find with a high number of 1031 exchange investors seeking to redeploy capital into Northern Nevada retail properties, Brower added.
“It is a very tough market right now,” he said. “There is a lot of interest from people outside of this market wanting to get into it, and there’s not a lot of retail inventory out there that makes sense.
“We are seeing a lot of money wanting to get out of California and get within our tax environment, Brower added. “If you have a good property that’s well occupied with good cash flow, people are going to take a hard look at it.”
Single-tenant assets such as quick-serve restaurants, oil and lube, and other businesses that are stable with strong cash flows are very valuable right now, Brower noted. Those tenants typically have leases with built-in increases, which keeps increasing the value of the real estate and keeps up with escalating inflation.
While there were few retail sales transactions in 2020 due to the pandemic, sales volume was strong in 2021.
In the third quarter, there were 10 retail transactions totaling more than $28 million. The most notable asset to change hands was Smithridge Plaza in Reno. Notable leases include Flooring Liquidators taking 32,587 square feet at Northtown Lane, and BlueZone Sports taking nearly 12,000 square feet on East Plumb Lane.
Colliers’ Holm said there likely will be strong demand for fitness space in 2022. Business at his four yoga studios increased to 80 percent of pre-pandemic levels and Holm expects business to spike to 130 percent of normal once mask restrictions are lifted and life resumes some semblance of normalcy.
“We realized through the pandemic that we are social creatures,” he said. “We want to see each other in person. That will lead to a huge demand for fitness from people who have been socially isolated and haven’t been vacationing.”