Brad Bonkowski and Andie Wilson: Why does lower industrial vacancy rate equal more jobs?
In January 2015, we updated our commercial industrial market report and identified Carson City’s industrial vacancy rate at 7.14 percent. This was not an estimate. The number was determined by sorting through piles of data — determining all applicable properties through the Assessor, then personally visiting each of the 185 resulting properties to ensure they were truly industrial (and not another conforming use, like office or retail), and then determining either through contacting the property owner or the property manager, or knocking on doors when necessary, what percentage of each building was actually occupied.
Since that date, we have estimated this 7.1 percent vacancy rate, which indicates a strong industrial market transitioning to a Landlord’s market, is, in fact, dropping. As a result, we have seen industrial lease rates start to edge up, rising to $0.40 per square foot on average. At the bottom of the Great Recession rates dropped as low as 25 cents per square foot.
You may be wondering why we’re so obsessed with industrial vacancy rates. As consumers, most of us care more about retail! We want places to shop and eat, right? Why do we care so much about locations where manufacturing, distribution, and warehousing take place? It’s because retail and office growth follows industrial growth in the economic cycle. First and foremost, we need industrial jobs, which are typically what we call “primary” jobs, producing goods and services for customers who are predominantly outside of the community. When a widget is manufactured in Carson City, and sold to someone in California, those dollars coming into our community from California are “new dollars.” Those new dollars make our local economy stronger, healthier and more diverse. When you, a Carson City resident, buy a widget (or a hamburger) from a Carson City company, you’re just moving dollars around within the community. This is certainly still important to the company from whom you’re buying the widget (or the hamburger), but not as impactful to the community overall as “new dollars.”
When we lease or sell industrial buildings, the jobs being created are typically primary jobs. The more primary jobs there are, the more office and retail jobs are going to be created. There’s actually a proven statistical formula to calculate the job multiplier of industrial jobs to retail and office jobs of 1.8. Every 100 new jobs created in Carson City’s manufacturing sector equates to 180 total new jobs because of the number of retail and office jobs, considered support jobs, that ultimately are created to help accommodate the new primary jobs (and the income being created by those new jobs).
As commercial real estate brokers, our job is to fill empty space. We do this by attracting and recruiting new companies or through helping existing companies expand, thereby helping to create jobs. In the past three years, in Carson City alone, we have worked to find locations for 46 companies, 31 of which were new businesses to Carson City and six of which were expansions (the remainder were companies relocating within the area). A conservative estimate puts the number of jobs we’ve helped to create (through those new company locations and the expansions) at 112, in Carson City. These new jobs were a mix of industrial, office and retail jobs. We’re proud of every single new job we help create and we’re just two brokers out of the ten full time commercial brokers who conduct their business primarily in the Carson City area. All of us are working every day to bring new businesses to our area because every new job can be transformative for our community.
This conversation is related to another question we often hear, which is why we work with NNDA (the Northern Nevada Development Authority). Similar to the work we do — finding locations for companies to locate, expand, and grow — NNDA is also recruiting out of state manufacturers and assisting them in relocating here. Additionally though, NNDA focuses on workforce development, tax incentives, and all of the other facets of a potential relocation, whereas we primarily focus on the new location.
In the past three years in Carson City, NNDA’s work has led to the creation of 118 primary jobs. During this same time period, NNDA had to refer eight of the new companies they were working with to EDAWN to the north due to a lack of industrial space availability (there were no suitable locations for these companies to land here in town). These were companies who would have preferred to locate in the “rurals,” meaning our neck of the woods: Carson, Lyon, Douglas counties. Of these eight referrals, so far five are “wins,” meaning they found locations in Washoe County or TRIC. The total number of jobs attached to these “wins” was 170, and due to the lack of space here, those 170 jobs were unable to land in Carson City.
So you can see why we care about industrial space. The lack of available industrial space means we lose jobs to other areas. Bringing new companies anywhere in the region is still good for all of us, even if we can’t accommodate them in Carson City, and our efforts continue. But it’s an issue that needs to be solved, and soon, as the industrial vacancy rate continues to drop and we continue to lose companies to Washoe County.
Many thanks to Danny Campos with NNDA, who’s always so quick to provide us with the data we need for clients, and for articles like these!
Brad Bonkowski and Andie Wilson are Broker/Owners of NAI Alliance Carson City, a commercial real estate brokerage. They may be reached at (775) 721-2980.