After going through one of the toughest recessions in its history, Northern Nevada’s commercial real estate market suffered greatly as rising vacancies crushed new construction activity and speculative building. The region’s commercial real estate sector is in the midst of a comeback, however, thanks to several economic development victories over the past few years causing a rising tide effect. Major projects, such as the Tesla Motors Gigafactory, Switch Supernap Tahoe Reno Industrial Campus and Rackspace Data Center, helped legitimize Reno as a viable area for industry and technology, said Ted Stoever, vice president of land and investment for Colliers International’s Reno office. Ultimately, these projects are driving job creation opportunities and all the ancillary businesses that go with that.
The hotel building boom continues in the U.S., as a total of 103,230 rooms within 865 hotels are currently under construction and scheduled to open through the course of 2016, according to hotel research firm STR. The industry continues to break records on both the demand and revenue side, and developers are boosting investments to keep up with the surging demand. The 1.5% uptick in rooms opening this year is still below the long-term annual average of 1.9%, says Jan Freitag, STR’s senior vice president of lodging insights. But building activity has dramatically increased, with 21% more rooms under construction than a year ago.
In an effort to make Nevada more competitive with neighboring states, Senate and Assembly members held a joint committee hearing on SB93 and AB161, which would expand tax abatements to the aviation industry. The bills have bipartisan support, as the abatements would would quickly create hundreds of good-paying jobs and would bring Nevada in competition with 45 other states that offer abatements or exemptions. During the hearing, industry representatives said aviation companies have avoided doing repairs, expanding their business or headquartering their planes in Nevada because adjacent states offer better incentives.
Although Nevada's Question 3, which proposed a two-percent (2%) margin tax on business entities in Nevada with total revenue in excess of $1,000,000 to fund the operation of the public schools, was shot down by voters in the Nov. 4 election, the Las Vegas Metro Chamber of Commerce told members it’s time to step up and help raise more revenue for education. While business leaders rejected Question 3, they do support tax and education reform, as long as it's long-term, stable and doesn't just target one industry.
After a 5-state battle for Telsa Motors' $5 billion battery gigafactory, Nevada came out as the victor. While the five million square foot complex is expected to generate 6,500 high-paying jobs, which officials say will change the face of Northern Nevada commerce, it didn't come without a steep cost. Telsa will receive a $1.25 billion tax incentive package that will span over 20 years, a figure that is more than double the $500 million package CEO Elon Musk said would be required to draw the company.
Las Vegas' economy is finally improving, boosting commercial real estate markets in the first quarter. According to the Las Vegas Business Press, a new report from commercial brokerage Avison Young shows improvements in the industrial, office and retail sectors, and gives a few key trends to look for. Industrial vacancies fell to 11.1 percent in the first quarter, down from 12 percent in the same quarter a year earlier. North Las Vegas was especially hot: The submarket posted the most industrial sales and the third-largest number of leases in the past year, which could boost rents and spark new construction in the area. As leasing activity picks up, lease rates will likely slowly rise marketwide though 2014. Developers will begin to push outside of the metropolitan area, due to a lack of available land. For the office sector, vacancies rose slightly from 19.5 percent to 20 percent year-over-year in the first quarter. Expect office vacancies to decline and lease rates to rise as the local economy continues to improve in 2014, the study said.
Some local government officials are pushing to lift Nevada's property tax cap that was enacted by the Legislature in 2005 when land values were soaring, but state legislators appear to be hesitant to make any wide-sweeping formula changes in the 2015 session. Assembly Speaker Marilyn Kirkpatrick wants to fix a "loophole" in the commercial property side of the tax cap that could generate some additional revenue for the cash-strapped local governments. However, she is not trying to make fundamental changes to the 3 percent annual increases allowed for residential property and up to 8 percent for commercial property, and Gov. Brian Sandoval said he is not considering the idea of changing the property tax cap law either as he prepares his 2015-17 budget.
Commercial real estate investors seeking higher returns are turning to smaller markets and buying suburban properties. According to Bloomberg, demand for office buildings, retail centers and warehouses in cities such as Reno, Nevada; Greensboro, North Carolina; and Louisville, Kentucky, is surging as yields shrink for real estate on the coasts and in larger cities. Properties on the outskirts of major metropolitan areas also are attracting interest, with prices for suburban offices rising faster than downtown real estate.
Mesa, Arizona will be the latest location for an Apple, Inc. warehouse, and the company is likely to receive huge property, equipment, energy and payroll tax breaks and other incentives from the state. Apple purchased the failed First Solar plant for $113.6 million, and will employee 700 workers. The company has recently opened data and operation centers in Nevada, Texas, Oregon and North Carolina, and will receive as much as $196 million in tax breaks from those states.
According to the Tax Foundation's annual report, New York ties New Jersey for the worst business tax climate in the country. This is the second consecutive year New York has ranked the lowest of the 50 states. One of the biggest setbacks to the state's score is the high and progressive individual income tax. High property taxes are also a major contributor to the unfriendly business climate. The top ranking states - Wyoming, South Dakota and Nevada - on the other hand, have no corporate or individual income taxes.