Commercial real estate in Las Vegas is showing signs of improvement in the retail and office sector, with industrial running at full speed. Absorption holding up in the industrial market, as millions of square feet of space came online in the marketplace in 2017, a report by Colliers International Las Vegas showed.
The commercial real estate in Las Vegas market had roughly 3.7 million square feet of space completed in the first two quarter of 2017, with 3.6mm square feet of that space absorbed, Colliers’ second-quarter report showed.
Other major statements in the industrial sector included electric car maker Faraday Future scrapping plans on its 650,000-square-foot project in North Las Vegas — once pegged to be 3 million square feet — at the Apex Industrial Park.
The retail and office sector also had improvements in its net absorption over the same time last year and last quarter. All three sectors improved their vacancy rates in the second quarter, the report showed.
One major sale, just outside the purview of the second quarter, was the announcement that New York-based Blackstone Group was acquiring International Market Centers, the owner of the 12.2 million-square-foot World Market Center, near the Symphony Park development.
The building, which features millions of square feet of home furnishing showroom space, was owned by Bain Capital and Oaktree Capital Management.
The commercial real estate in Las Vegas market’s vacancy rate fell slightly to 5.4 percent from 5.5 percent in the first quarter. That rate came down from 5.6% in the second quarter of 2016, according to the Colliers report.
The industrial market, however, registered a 5.3 percent vacancy rate in the third quarter of 2016.
Which is a positive thing with the amount of industrial space coming into the market.
Second-quarter completions were strong in North Las Vegas, where nearly 1.6 million square feet of space came online in that period. The leftover portion of the completed projects was in the southwest, with 375,000 square feet of industrial space being constructed in the second quarter.
Valleywide, 4,9 million square feet is set to come online by the end of 2017, in addition to the 3.7 million square feet already completed in the first two quarters of the year.
One project of note is the Northgate Distribution Center, where 3.2 million square feet of space is planned. In May, a Missouri-based developer VanTrust Real Estate announced construction had started on a project covering around 191,000 square feet.
Some setbacks did happen in the second quarter, with Faraday Future announcing the company would not be moving forward with its manufacturing facility at Apex Industrial Park in North Las Vegas that it originally planned.
As a whole, Hayim Mizrachi, president and principal at MDL Group, said he didn’t think Faraday’s exit will have a “material negative effect.”
“…There will be people/suppliers that may get hurt, and that is unfortunate,” he said.
He also added that Vegas has already received a lot of positive press from Faraday’s entrance into Las Vegas, which came at a “more critical time,” he said.
“Right now, there is so much positive momentum with the Raiders, Resorts World, Wynn’s Lagoon, etc., Las Vegas will go forward, and Faraday will be renewed with another project. Hopefully, one that materializes,” he said.
Smaller industrial users
Mega-projects are not the only part of the Commercial real estate in Las Vegas market.
LaPour Partners Inc. is planning a 207,000-square-foot industrial project, across seven buildings, near Henderson Executive Airport at the northeast corner of Bruner Avenue and Executive Airport Drive. They also have another 125,000-square-foot project in Las Vegas at Craig Road and Walnut Street.
The Henderson project has be divided down to 7,000 square feet or up to 100,000 square feet of contiguous space.
Demand is present in the local market for industrial product with low divisibility, according to Mike DeLew, executive vice president in Colliers International Las Vegas’ industrial division.
The smaller project type, which DeLew said was referred to as mid-bay, has a higher pool of tenants for landlords or building owners to choose from.
He pointed to an 80,000-square-foot development in the southwest by Brass Cap Cos., which had been divided down to 20,000 square feet. That project was preleased before it was completed.
DeLew said a bigger project that goes down to 50,000 square feet might go for 60 cents a square foot in the Southwest, where a building that goes down to 15,000 square feet might tender 80 cents a square foot — a 33 percent premium.
Marketwide the average was 64 cents a square foot — an increase over the 62 cents during the same period last year.
For commercial real estate in Las Vegas, the amount of construction going on for smaller product has been much lower than in the big-box sector. He stated it being around 300,000 square feet of space is under construction, and only 150,000 square feet is currently planned.
The office sector had strong absorption rates in the second quarter, with 545,955 square feet of net absorption. That is the hardest demand in nine quarters, the Colliers report said. according to the report, the average net absorption per quarter in 2016 in the office market was 163,000 square feet. The high absorption rates led to a decrease in vacancy to 16.1% in the second quarter — compared to 17.6% in the same time last year and 17% in the first quarter of 2017.
Commercial real estate in Las Vegas has been on the rise, industry experts said. Ed Vance, CEO and founder of the Las Vegas architectural firm Ed Vance and Associates, said his firm has been working on several new office projects in the southwest and Summerlin.
For commercial real estate in Las Vegas, one of those projects is the planned three-story, 180,000-square-foot campus for Australian slot-machine maker Aristocrat Technologies. That program, by Summerlin developer Howard Hughes Corp., is pegged for delivery in late 2018 and sits at Hualapai Way and the 215 Beltway.
Ryan Martin, senior vice president at Colliers International Las Vegas’ office division, said that building is being raised as demand from companies wanting to be in the Summerlin area and along the 215 Beltway has grown. Hughes presented One Summerlin, a 200,000-square-foot, eight-story office building, in 2014.
Gardner Co. is developing speculative office buildings along the highway. The company is the master developer of the UNLV Harry Reid Research and Technology Park, which is set to show in the fall on a 122-acre site at Sunset Road near Durango Drive, just off the 215 Beltway.
Projects such as Credit One Bank and Aristocrat, which is developing a 152,000-square-foot, build-to-suit project in the southwest for its headquarters, are another part of the office sector that’s thriving.
“It definitely has created a niche in the marketplace,” Martin said. “Aristocrat, Credit One and some of these other groups really haven’t been able to find what they need available today, so they built it for themselves or found a developer to build it for them and are willing to pay that freight in order to do that.”
UFC delivered its 184,000-square-foot campus headquarters in the second quarter, also along the Beltway. There were no completions registered in the second quarter, according to Colliers.
rates for leases have been a bit slow to grow, Martin said.
In all classes of office space in the valley, the asking rent average, full service gross, was $2.02 a square foot — up from $1.99 in the second quarter of last year, in 2016. There was no change in the second quarter from the first quarter of 2017.
During the recession, rates for the entire office market went down to $1.88 a square foot. Martin estimated the growth rate since then at about 8%, or roughly 1% a year.
The retail sector had a sluggish first quarter, but it’s recovering, according to the Colliers report. This sector has had a negative net absorption of nearly 18,000 square feet in the first quarter of 2017.
Al Twainy, a vice president at Colliers International Las Vegas, said the lag was “mainly due to closures of some of the big boxes.”
Many large retailers pulled out of the Boulevard Mall as one example: J.C. Penney and Macy’s announced they were pulling out of the mall at Maryland Parkway and Desert Inn Road in the first part of 2017.
A report by Fung Global Retail &Technology, which does research on the sector, predicted that more than 9,400 retail projects might close by the end of 2017. Several brands, including Rue21 Inc. and Payless Shoes, entered Chapter 11 bankruptcy and made plans to close more than 1,000 stores.
The unemployment rate sat at 4.8% in May, according to the Nevada Department of Employment, Training and Rehabilitation. That’s a decrease of 1.6% from May in 2016, when the rate was 6.4%.
Between 2012 and 2016, Las Vegas saw an average wage increase of 0.8 percent per year — a match to the national average in that period, according Las Vegas-based RCG Economics.