The state of the commercial real estate market took center stage at the June breakfast of NAIOP Southern Nevada.
The development organization hosted a program entitled “Deal, Dirt and Development: Southern Nevada Brokers Driving Growth” that featured what it takes to break ground, close deals and bring ambitious projects to life.
It featured Jason Otter, founding partner at LOGIC Commercial talking retail; Tonya Gottesman, a vice president at CBRE discussing the office sector; and Chris Lexis, a principal at Avison Young talking industrial.
They talked about insights on navigating costs, working with local jurisdictions and uncovering new opportunities in what’s a dynamic and competitive environment in Southern Nevada.
Terri Sheridan, economic development director for the city of North Las Vegas, moderated the program.
Gottesman said it’s been the same story for a while for the office sector with the southwest being the strongest because of the 215 Beltway and being between Summerlin and Henderson.
“Narrative, UnCommons and Centra Point office projects have done very well for the community and our market,” Gottesman said. “In the west, Summerlin has done very well. Howard Hughes has done great with its building. It’s image, location and walkability.”
In Henderson, while it’s an older development, there are buildings selling to owners and users, Gottesman said.
“There are not a lot of investors coming to Las Vegas from an office standpoint, but I would say a little bit of the southwest. It has to pencil for whatever investor is coming in. There’s a lot of office buildings on the market but unfortunately there haven’t been investors to acquire them.”
Lexis said when it comes to industrial the southwest with newer buildings of less than 50,000 square feet has the momentum at this time. Lease rates are pushing up with some buildings going $3.50 a square feet in the southwest.
Meanwhile, there continues to be a disconnect between sellers and investors and a lot of capital remains on the sidelines, Lexis said.
When it comes to retail, Otter said investors don’t care what corridor it’s in but care about the cap rate, tenant mix and credit of the tenant and whether they’re paying market rents. Deals, however, haven’t been getting done.
“I have never seen so much capital on the sidelines and not only private but institutional investors who are very bullish for the market,” Otter said. “They are waiting for a dip — a little bit of value to place that capital, and they haven’t seen it yet.”
Tenants just want to know where the rooftops are and density; and the southwest and west Henderson are great growing markets, Otter said. Skye Canyon in the northwest valley has created opportunities and is a corridor for expansion. Supermarkets like new Aldis are faring well, he noted.
Gottesman said Las Vegas could use more land to build office buildings, and that the big opportunity is with medical office buildings. The majority of hospital systems are building because they have land attached to their properties, she said.
“We’re seeing Intermountain build some pediatric clinics,” Gottesman said. “Optum took on a building in Henderson to have a clinical service. We have seen the Culinary Union build a 100,000-square-foot-building for all of their medical providers. I think medical is a huge opportunity in our town, but it is difficult to bring providers to this town, regardless of its being private-practice based where specialty doctors can have their own practice, build their own surgery center and do very well here unlike other markets.”
Sheridan chimed in how North Las Vegas has 135 acres adjacent to the Veterans Administration hospital where there are talks with hospital groups for surgical centers, medical office buildings and a hospital campus.
“The city of North Las Vegas doesn’t have a general services hospital so we need one,” Sheridan said. “I would hope to say in the next 10 years you will see great things happening on that particular piece of dirt. It will be our version of what’s happening in the southwest.”
Sherdian said they are also working with the Bureau of Land Management to make more land available for sale.
Lexis said there’s opportunities around the valley for in-fill properties and urged municipalities how it’s important to change master plans and zoning to open it up for commercial use. As for the Eldorado Valley, Jean, Sloan and Apex in North Las Vegas it will be about infrastructure.
“Once infrastructure comes there’s a ton of opportunities there,” Lexis said.
Otter said he doesn’t expect to see much new retail development in the near future outside of bigger box grocery retailers and single-tenant retailers. There’s a potential Walmart coming online in North Las Vegas, he noted.
“It’s because land costs are at all-time highs,” Otter said. “Construction costs are still high so the rents that developers need to receive and pass off to a retailer — most retailers their sales are declining here in Southern Nevada and not just here but throughout the country. They just can’t pay the most they ever paid per square foot in rent here.”
Retail property owners, meanwhile, are faced with a lot of debt coming due and will have to do something in the next 16 to 18 months, and a lot of them don’t want to infuse new capital in the deal. They have plenty of equity in the deal and can sell that asset instead, Otter said.
“For retailers and restaurants, Las Vegas has had such a boom 2000 to 2006, and a lot of these real cool and big restaurants are on 20-year leases. A lot of them have a six-to-nine-month window to give the landlord notice of renewal. They’re in an efficient older prototype from 20 years ago, and they usually want to downsize and pay less in rent because they’ve had increases every five years. A lot of them are still good real estate, and there’s plenty of other retailers and restaurants looking to expand in Vegas and could come in and take those locations.”