Aerial view of the 95,000 square foot building at 645 E. Plumb Lane in Reno (seen in the foreground), which will house a new campus for Panasonic Energy of North America.

The repositioning of the former AT&T and Nevada Bell building on East Plumb Lane is a huge win for the Northern Nevada office market.

In fact, the lease for the nearly 95,000 square foot building is the largest true office lease ever signed in northern Nevada, said Chase Houston, vice president and director of NAI’s office team. Alliance.


Built in 1964, the building was clearly functionally obsolete and could have remained in obscurity for years.


However, Panasonic Energy of North America will expand its footprint in the Truckee Meadows by creating a divisional campus including engineering labs, training facilities and other support functions for its battery manufacturing operations at Tesla’s Gigafactory in Tahoe Reno Industrial Center.


The office building is owned by Los Angeles-based Industrial Realty Group LLC, which will redevelop the property to meet Panasonic’s needs, said Brian Armon, industrial group vice president at NAI Alliance, who worked with PENA to find a property in northern Nevada. .


Due to a lack of available space, Panasonic initially considered renting an industrial facility and setting up a lab there, but after reviewing a number of industrial properties and assessing the costs associated with setting up a lab modular, that view has changed, Armon said.


“We started looking for buildings that had the opportunity and the infrastructure where we could convert a lab, and this building had substantial infrastructure from a power and battery backup perspective,” said he declared. “There is already a generator on site, and there is a large module for the backup battery.”


IRG specializes in repositioning old assets across the country that have been left behind and turning them into viable, modernized properties, Armon said.


IRG purchased the building several years ago, but it had remained vacant. Group West Construction, Inc. will handle the physical renovations for IRG, said Justin Lichter, vice president of Industrial Realty Group.


Lichter said IRG released numerous marketing materials about the property that helped show its potential. Developers don’t really build structures like this anymore, Lichter added. The building has a ton of windows, multiple outdoor courtyards, and even underground parking.


“We have been excited about this building since we acquired it,” Lichter said. “We knew it was only a matter of time until someone saw what we saw there. When you see it as it is, it’s hard to visualize, but that’s what we do.


“We knew it could work either as a single-tenant campus for some of these big tech companies that are considering Reno, or as a multi-tenant building. We had some interest and thought it would be rented sooner but COVID hit and that put a damper on the office market. This (building) is ideal for Panasonic and for the City of Reno to reposition a property in this location with all the gentrification leaving Midtown.
Houston


Panasonic will occupy the building in phases as renovations continue and is expected to move in this summer, Lichter said. Armon represented the tenant in lease negotiations, while Houston represented the landlord. Houston said an important secondary win is the large number of high-paying jobs that will be located in the heart of Reno.


“You hear about (high-paying) jobs at TRIC and where Tesla is, but rarely do you get big companies taking office with high-paying (downtown) engineering jobs,” he said. . “A lot of big companies are abandoning Reno because we don’t have the giant spaces and ready-to-run tech campuses they need.”


In other regional office news, the pandemic continues to create uncertainty in the market, but small tenants leasing office space have made up for the losses suffered by large corporate clients who have still not returned to their homes. offices,” said Patrick Riggs, office specialist at Dickson Commercial Group.


Last year was drastically different from 2020, Riggs added, but the future of the regional office market remains murky as new COVID variants continue to emerge – omicron clouds the outlook as masks and other restrictions clearly won’t go away. not disappear anytime soon.


The main drivers of the rebound in 2021 were tenants under 5,000 square feet. These companies have largely helped the Northern Nevada office market achieve positive absorption in 2021, Riggs said.
“They really took the torch and ran with it,” he said. “We’ve definitely seen an increase in businesses in the area, but it’s still businesses under 5,000 square feet.


“There is still some corporate overhang – they have been reluctant to come back, especially as new (COVID) variants emerge. It was the small users who were able to come back more effectively.
The third quarter of last year ended with approximately 68,000 square feet of positive net absorption and the vacancy rate was just under 11%. The vacancy should continue its downward trajectory as we navigate the new year, Riggs said.


Office owners are also changing their strategies as the market rebounds, Riggs noted. Landlords remain aggressive in their pursuit of new tenants, but are beginning to limit terms as they attract new tenants.


“Smart landlords are looking for offers and tenants who were considering this market in 2020 and 2021,” Riggs said. “These landlords have been very aggressive in finding tenants and occupancy, but we’re starting to see a change from that, especially in sizes under 5,000 square feet.

Lichter


“Landlords are pushing rental rates a little bit now and not giving as many concessions,” Riggs added.

“It’s something to watch in 2022, but it all depends on where we go with COVID. We have so much (investment) money and 1031 (exchange) money coming over the hill (from California) that our market is strong. Office rebounded in 2021 and we will continue to see that strength in 2022.”

NAI Alliance’s Houston said the office market in the third quarter of 2021 rebounded to pre-covid levels and remains positioned for even bigger gains in 2022. The biggest change he noted is that tenants are asking for more flexibility during lease negotiations.


“Instead of a five- or ten-year lease, they’re asking for shorter terms,” ​​he said. “But we get higher premiums for landlords for rental rates by offering this flexibility.”

Rigg


Another trend that’s surfacing for tenants operating under the hybrid office-work-from-home time-sharing model is that they’re asking for more collaborative space in their offices, Houston added.


“They want larger collaboration rooms, auditoriums and conference rooms,” he said. “The ‘heads down’ work is done at home, and you come to the office to collaborate.”


According to a fourth quarter office market report published by Colliers International, net absorption in the fourth quarter was 73,954 feet, the highest number seen since 2019. Net absorption for the year was 132,519 square feet.


Investor demand led to fourth quarter office sales of $56 million, a 50% year-over-year increase, and annual sales of $222.8 million were the volume the highest since 2018. Average demand rates of $1.84 per square foot, meanwhile, represented a modest 4% gain on the year.