The Las Vegas retail market got off to a good start during the first quarter and set the stage for a strong 2016, according to researchers and retail brokers.
The total vacancy rate of 8.2 percent is down from 8.7 percent during the fourth quarter of 2015. The direct vacancy rate dropped to 7.6 percent from 8.1 percent at the end of last year, according to Xceligent, the Kansas City, Missouri-based research firm that tracks the market for the Commercial Alliance of Las Vegas.
“I think the market has been expanding pretty steadily a couple of quarters now in Las Vegas, and the spring has really picked up,” said Lisa Callahan, principal with Sage Commercial Advisors. “There’s a good level of activity, and things are pretty positive in our market.”
The first quarter saw about 406,000 square feet in absorption, well above the 98,000 square feet in the fourth quarter of 2015. That’s a reversal of the third quarter of 2015 when there was a negative 102,000 square feet in absorption of retail space, said Tina Reith, director of analytics for Xceligent.
“We’re definitely off to a good start to the year,” Reith said. “Over time, the absorption level has progressed, and this is the most we have seen in the last five quarters.”
The absorption gain came despite the research firm reporting that four Fresh &Easy locations became vacant during the first quarter, putting 60,000 square feet of space on the market.
What helped was two former Target stores were leased – one to Burlington Coat Factory and the other to the Southern Nevada Health District — accounting for 160,000 square feet in absorption, Reith said.
Those leases brought down the vacancy rate in Las Vegas power centers to 4.8 percent, down from 5.8 percent a year ago, the report said. Some 1 million square feet of the 21.7 million square feet divided among 152 power centers remains vacant.
The valley’s 25 regional shopping centers totaling 12.7 million square feet have the lowest vacancy rate at 3 percent, the same as a year ago. Only 22,000 square feet of space was absorbed during the first quarter, a reflection of the limited space with only 380,000 square feet vacant.
The valley’s 265 neighborhood shopping centers fared the worst during the first quarter with a vacancy rate of 12.8 percent. That’s still an improvement from 14.5 percent a year ago. Some 2.5 million of the 19.6 million square feet is vacant. The good news is that it had the second-highest absorption rate at 114,000 square feet during the first quarter.
Strip centers also continued to fare poorly with a 12.1 percent vacancy rate. Some 2.2 million square feet of the 18.3 million square feet in 749 center is vacant.
Nearly 56,000 square feet of the space was absorbed, dropping its vacancy rate from 12.8 percent during the first quarter of 2015.
“A lot of the Fresh &Easy boxes are probably going to be occupied shortly,” Callahan said. “A lot of them are in the process now and some of the grocery boxes that were vacated by Food For Less and what went on with Haggen (and its bankruptcy) and Albertson’s acquisitions. We’re seeing some activity on those, and they will take a little longer to backfill but there is activity at least and those are positives signs in our marketplace.”
The retail market is already abuzz with the planned second-quarter opening of IKEA in the southwest valley.
A Conn’s HomePlus opened its second store in the valley in late March on Rainbow Boulevard, Callahan said. Dollar Tree has also taken space previously occupied by closed Fresh &Easy stores, she said.
“It will take a little while to absorb all the vacancy, and a little while to where we’re back to where we were,” Callahan said. “I think this trend will continue and the year will be very active and positive, and I think we will see a lot of absorption and vacancy rates decrease and rental rates increase.”
Average triple-net lease rates continued to hover between $1.30 and $1.40 per square foot per month, the report said. Average rates have increased .02 over the last five quarters and currently rest at $1.36 per square foot.
Nelson Tressler, executive managing director with Newmark Grubb Knight, said the retail market is headed in the right direction with tenants wanting to lease. In addition, there’s a lot of activity with buyers.
“I listed a center last week and had a couple of offers at or above asking price,” Tressler said. “There’s not a lot of good product out there, and that’s motivating buyers to get aggressive with their offers. Overall, it feels like the Las Vegas market is bullish and tenants are looking for space and buyers are looking for shopping centers to purchase and it’s good to be a landlord right now.”
Tressler said the retail market started it’s improvement in 2013 and 2014 and has gotten better every quarter since.
The biggest example of that improvement is how landlords have to give less and are less desperate to make the concessions than they had been during the Great Recession.
“The A centers are holding steady, but some of the B and C centers (unanchored stores and strip centers) that were struggling to get tenants to look their direction, now tenants are looking at them. Landlords who were super-aggressive on the rates don’t have to be now,” Tressler said. “We have seen rates in some of our centers go up 10, 15 and 20 percent in the last year as the center continues to get full.”
The tenants filling much of the space are local retailers, some which have multiple locations already, Tressler said. He said there hasn’t been an influx of out-of-state companies flowing to Las Vegas to get into the market, he said.
“I think it will continue to get better,” Tressler said. “It’s not going to be a spike. It’s not going to be the phone ringing off the hook and you can’t figure out where the calls are coming from. I think it will continue to be steady and continue to get better every month and every quarter and hopefully continue that way for a long time — a manageable normal growth and normal market and less peaks and valleys.”
That was echoed by Scott Marker, a senior vice president in the retail division with Collier’s International. He said it’s getting healthier at a better pace and not the high rate of speed during the market’s boom a decade ago. The marketplace had been up and down following the recession, but it’s trending positively and on a sustained pace now, he said.
“It wasn’t a healthy place (during the boom),” Marker said.
Marker said the vacancy rate was below 3 percent during the boom, and that market was in such a place that retailers paid landlords cash to get into the center. The market will probably never return to where it was, and that’s good, he said.
“A lot of the visionaries don’t think we will ever see that again,” Marker said. “I think we’re at a pace that makes sense and is sustainable. I would rather have that than values increase at such a rapid rate that collapse.”
Among the highlights of the first quarter report:
■ The perimeter of the McCarran International Airport had the highest vacancy rate at 18.3 percent. That was followed by 12.4 percent in the areas southeast of downtown and north of the airport.
■ Downtown Las Vegas had the lowest vacancy rate at 2.2 percent, while the Strip had a 4 percent vacancy rate.
■ The southwest valley had a 6.5 percent vacancy rate and the southeast that includes Henderson was 8.3 percent. The northwest valley, which includes the area north of Summerlin Parkway, had 8.3 percent. The west valley, south of Summerlin Parkway, was 6.1 percent.