Several of the commercial real estate markets in the Las Vegas Valley improved in the first quarter of 2017.
The Las Vegas Valley’s industrial market welcomed over 2.2 million square feet of new space in the first quarter of 2017, double the number of completions in the first quarter of 2016, according to a report by Colliers International Las Vegas.
“Southern Nevada has been threatening a construction boom for a few years now, and in 2017 the boom has arrived,” said John Stater, research and GIS manager at Colliers International Las Vegas, in the first quarter report on industrial.
That “boom” left the sector with a bump in overall vacancy, which increased to 6.1 percent in the first quarter over the fourth quarter’s 5.2 percent. The vacancy rate in the first quarter of 2017 was also higher than the same time last year, when vacancy sat at 5.7 percent.
Average asking rents in the industrial market also fell slightly in the first quarter of 2017 to 63 cents per square foot, down from 67 cents per square foot in the fourth quarter of 2016. That was also lower than the average asking rent in the first quarter of 2016, which sat at 65 cents per square foot.
Vacancy is expected to reach 8.6 percent, as an estimated 8.1 million square feet of new space is expected to hit the local industrial market in 2017, if net absorption rates stay the same, according to the report. Net absorption, new square footage leased minus the square footage of tenants that have moved out, was positive in the overall market.
The largest project in the pipeline for the second quarter is Dermody Properties’ 546,480-square-foot industrial building in North Las Vegas, LogistiCenter at Las Vegas Boulevard, according to the report. The second quarter is expected to bring more than 1.8 million square feet in construction in industrial space.
The office sector has seen improvement, though there were no new completions in the first quarter of 2017, compared to 2016, when 10,700 square feet of office space were constructed in the valley.
The vacancy rate fell to 17 percent in the overall market in the first quarter of 2017 from 17.2 percent in the fourth quarter of 2016. That was also an improvement over the first quarter of 2016, when vacancy in the office market in Las Vegas was 17.5 percent.
“Office space is slowly improving,” said Paul Chaffee, senior vice president, office division at Sun Commercial Real Estate Inc. “We do have some projects that are coming on board, but a lot of the Class A projects that we see coming are getting taken up fast.”
One project of note is near Downtown Summerlin, where Howard Hughes Corp. announced plans to raise a 152,300-square-foot, six-story office building at Pavilion Center and Griffith Peak drives in the fourth quarter of 2016. That project sits near its 200,000-square-foot, nine-story, One Summerlin office building in Downtown Summerlin.
“Sahara and Decatur avenues used to be one of the biggest intersections in town,” Chaffee said. “Now that the 215 is open, people travel in different areas, plus you have more competitive areas like Downtown Summerlin.”
Asking rents in the office market on a triple net basis were down very slightly in the first quarter of 2017, which sat at $2.02. Asking rents sat at $2.03 per square foot on a triple net basis in the fourth quarter of 2016, up from the first quarter of 2016 when asking rents were $2.
Overall asking rents were up for Class A office product in the first quarter at $2.68 a square foot over the first quarter of 2016, when asking rents were $2.66 per square foot. Rents were still higher in the fourth quarter of 2016, however, at $2.70 a square foot.
According to the Colliers’ report, there are more than 172,364 square feet of office development scheduled through the end of 2017 — located in the Henderson and southwest submarkets. The largest project, planned for the fourth quarter of 2017, is a 100,000-square-foot office building, known as Magnum Tower at Sunset Road and Riley Street.
The retail market saw some improvements in asking rents in the first quarter of 2017, though vacancy increased slightly, due to a negative net absorption of more than 17,000 square feet. According to a report by Colliers Las Vegas. This occurred because of the closure of several large anchor locations, the report said.
Vacancy was 8.4 percent in the first quarter of 2017 — up from 8.3 percent in the fourth quarter of 2016. Though on the increase, the vacancy rate was much lower than the first quarter of 2016, when vacancy sat at 9.1 percent.
The local market has felt the national trend of retailers closing stores. The Boulevard Mall was hit twice this year with news that large anchor stores had decided to close. JC Penney announced in March it was closing 138 stores in 40 states, with The Boulevard Mall location among them. Earlier in 2017, Macy’s at the Boulevard Mall also announced its closing.
But shopping malls like The Boulevard are working on adapting to the times, bringing in entertainment and ways to lure consumers to the brick and mortar locations. Sansone Cos., the mall’s owner, has also worked to diversify the asset by bringing in a call center company — TeleTech.
“Without question, the Amazons and what have you are going to increase to take that piece of the pie of retail, but I think they’re a long way from putting a dent in the Las Vegas Strip mall—Fashion Show, what have you,” said Rob Moore, senior vice president, retail division at Sun Commercial Real Estate.
In the overall market, rental rates are going up. Average asking rent has increased over the past 12 months. In the first quarter, average asking rents were $1.36 per square foot—up from $1.30 in the first quarter of 2016.
Moore said he is encouraged by the increases in rental rates. He also sees a continued increase in activity in the local commercial real estate retail market.
Moore did throw some caution on the local market.
“I have a respect for history, and I do think that the economy that we are enjoying is a fragile one,” he said. “We’ve got to keep our head and keep watching forward and enjoy it while we can and get ready for a dip. I don’t think that it’s going to be anywhere near extreme as the past, but I think it is on the horizon.”
Signs of the economy recovering show in the unemployment numbers. In March, the Nevada Department of Employment, Training and Rehabilitation reported unemployment fell to 4.8 percent—down from 4.9 percent in February.
This is an improvement from numbers that once reached as high as 15 percent unemployment at the height of the recession.