New manufacturing warehouses pop up valleywide while strip malls sit empty

There are good reasons developers have avoided new commercial real estate projects in Las Vegas.

Vacancy rates are sky high, rents are basement low, and it’s anyone’s guess whether the market will fully recover from the building bust.

But one area of real estate is seeing a burst of activity, though some analysts question how long it will last. At least 910,000 square feet of industrial space is being built in the valley, with more in the pipeline.

By comparison, there is 321,000 square feet of anchored retail space and just 175,000 square feet of office space under construction, according to Applied Analysis, a Las Vegas research firm.

Almost all of the industrial projects are being built or are planned by the companies that will use them, unlike during the boom era, when speculative projects with no tenants abounded.

At first glance, the new construction seems unnecessary. The valley’s industrial vacancy rate is up to 17 percent. Why build when there’s so much empty space?

Turns out, these companies need a lot of room, and most of the valley's vacant buildings are relatively small. Also, construction costs and industrial land prices are relatively cheap, making it more affordable to build a custom facility now than during the boom years, real estate executives and analysts said.

A distributor who needs 200,000 square feet, for instance, can’t use 10 buildings; he needs a single space under one roof.

“These types of facilities simply don’t exist in Southern Nevada, so if (companies) really need to be here, they have to build,” said Dan Doherty, an industrial real estate broker with Colliers International.

To be sure, the amount of construction going on now is a fraction of the amount that took place during the boom years. From 2002 to 2008, about 31 million square feet of industrial space was built in the valley, according to Colliers. Since 2009, only 2.5 million square feet has been built. Last year, no projects were completed.

Supply far outstripped demand over the past decade, and many projects never should have been built, Panattoni Development Co. partner Doug Roberts said.

“That’s the stuff that’s going to languish for a while,” he said.

By Applied Analysis’ count, there are four active industrial projects in the valley. They appear to have little in common, although Roberts said industrial real estate markets also are improving in Southern California, Phoenix, Reno and other regions.

Locally, SHFL entertainment Inc., the casino supplier formerly known as Shuffle Master, is building a 130,000-square-foot headquarters. Data-center operator Switch is adding a 600,000-square-foot facility. Food distributor Chelten House Products is building a 110,000-square-foot facility, and communications equipment maker VadaTech is building a 70,000-square-foot manufacturing center.

Projects in the pipeline include FedEx Ground’s 300,000-square-foot distribution center in Henderson, which broke ground Tuesday. TJX Cos., the parent of discount retailers T.J. Maxx, Marshalls and HomeGoods, is expanding its 700,000-square-foot North Las Vegas distribution facility by a reported 300,000 square feet.

Still, despite the burst of construction, Colliers Research Manager John Stater does not expect to see speculative industrial projects being built. While common during the boom era, they account for much of the empty space.

Even the current construction wave “might be a fleeting thing,” he said.

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