The Southern Nevada office market during the second quarter reached its lowest vacancy rate since late 2008 in a further sign of job growth and space getting filled.
Research firm Applied Analysis released its quarterly report showing the vacancy rate fell to 17.9 percent. It’s down 10 basis points from the first quarter and 1.2 percentage points from the second quarter of 2017.
The retail and industrial sectors also showed they are doing better as well. High-end Class A office space has a 14.6 percent vacancy rate versus 21.1 percent for Class C space. Speculative space has a 19.9 percent vacancy.
The office market expanded by 270,000 square feet in the second quarter with the completion of the new Aristocrat headquarters in Summerlin, the fourth phase of the Seven Hills Plaza and the new office of the Greater Las Vegas Association of Realtors, according to Applied Analysis.
There’s 11 ongoing office projects totaling 471,000 square feet, the firm noted. The 152,300-square-foot Two Summerlin office building is the biggest in the pipeline followed by a 60,000-square-foot office building for Gateway WellHealth and 45,000 square feet for a Roberts Communications complex.
The firm noted there’s was no new construction started in the April to June period, but that’s expected to pick up with the groundbreaking of the Harry Reid UNLV Technology Park in the southwest in which 12 office buildings are planned for 1.2 million square feet.
“In addition to local economic fundamentals, it will be important to monitor the impact of taxation policy changes, particularly in neighboring California,” said Applied Analysis principal Brian Gordon. “As the cost of doing business in high-cost states continues to rise and limitations on the deductibility of state and local taxes is felt by their residents, places like Nevada should be well-positioned to benefit in a number of ways.”
The average asking office lease rate rose to $1.98 per square foot per month in the second quarter, according to the firm. That’s a 2 percent increase over the past year and 4.5 percent from the second quarter of 2016.
The price for Class A space is $2.58 per square foot, up 1 cent over the past year. Class B is priced at $1.95 per square foot, up 5 cents over the past year. The Class C space is $1.55, up from $1.52 from the second quarter of 2017.
The direct retail vacancy rate was unchanged from the first quarter at 7.8 percent, but is down 0.4 percentage points from the second quarter of 2017. Anchored retail has a 9.5 percent total vacancy rate, down slightly over the past year.
Additional closures of the remaining Toys ‘R’ Us and Babies ‘R’ Us stores in the valley partially offset the market’s positive performance, the firm noted.
During the second quarter, there were two major leases for big-box spaces in the valley — Floor & Decor reportedly leased 70,700 square feet at Cheyenne Commons in the northwest submarket.
That space was previously partially occupied by Marshalls. In addition, Walker Furniture leased
65,600 square feet at SunMark Plaza in the southeast submarket at a former Colleen’s Consignment store, the firm noted.
Smith’s Marketplace completed construction on its 125,000-square-foot grocery store in Skye Canyon during the quarter. The store is the first phase of the 240,000-square-foot neighborhood center in the northwest submarket, according to Applied Analysis.
About 920,900 square feet of additional retail inventory remains actively under construction.
Eagle Promenade continued construction on its 178,400-square-foot development in the southwest submarket. The neighborhood center will be anchored by a 30,000-square-foot Sprouts Farmers Market, which is set to open this year, the firm said.
Maya Cinemas made progress on its 168,300-square-foot retail center on the northwest corner of Las Vegas Boulevard and Hamilton Street in the north submarket. The center will feature a 14-screen movie theater that is slated to open by the end of the year, the firm said.
Costco also continued construction on its 150,000-square-foot retail wholesale store on St. Rose Parkway in the southeast submarket of the valley. UnionPlaza also made progress on its 90,000-square-foot Las Vegas Athletic Club on the northeast corner of Galleria Drive and U.S. Highway 95 in the southeast submarket. There is also over 3.3 million square feet of retail space planned in the valley, according to Applied Analysis.
Gordon said the retail sector is benefiting from the growth in the economy and jobs, and the retail market has benefited from this growth by adding over 5,000 retail-using jobs over the past year.
Taxable retail sales in Southern Nevada have grown, increasing 3.6 percent over the past year to a record-high of $42.2 billion, Gordon said.
“The commercial retail real estate market has taken a cautious approach to development activity,” Gordon said. “We expect this measured pace will pay dividends in the long run. Backfilling vacant units while timing new development with incremental rooftops should result in a stable vacancy factor and provide upward pressure on rents.”
The vacancy rate fell to 6.8 percent in the second quarter after 1.8 million square of industrial spacewas absorbed. It’s down 1 percentage point from the first quarter.
The firm reported the largest movement of the quarter took place at LogistiCenter on North Las Vegas Boulevard where Sofidel America leased over 545,000 square feet. Smith’s Food and Drug Centers also leased over 480,000 square feet at South 15 Airport Center. Other notable leases include Oasis Biotech taking nearly 215,000 square feet at 6225 Annie Oakley Road and Art Build Inc. occupying over 87,000 square feet at Northgate Distribution Center in the northeast submarket, the firm said.
The industrial market has nearly 4.7 million square feet of inventory actively under construction and nearly 6.2 million square feet planned, the firm noted.
Tropical Distribution Center continued construction on its two distribution centers in the north submarket. The first building is an 855,000-square-foot distribution center for Amazon and the second is a 715,000-square-foot distribution center for Sephora, the firm noted.
In addition, Harsch continues to expand its Speedway Commerce Center with 390,900 square feet of inventory under construction. During the second quarter, South 15 Airport Center also commenced construction on its 189,000-square-foot distribution center.
Applied Analysis Project Manager Melanie Framo said the Las Vegas industrial market continued to outperform the retail and office markets with almost 2 million square feet of positive absorption during the second quarter. The vacancy rate dropped significantly during the quarter as distributors back-filled larger vacant spaces, she said. Her positive news came with a warning.
“Although the industrial market has nearly 11 million square feet of inventory either currently under development or in the pipeline, land availability is becoming an increasing concern,” Framo said. “With land prices on the rise and a limited abundance of sizable vacant parcels in the valley, the ability for large industrial developments to pencil may tighten in the coming years.”