The latest research on commercial real estate in Southern Nevada shows that, like the residential sector, it remains mostly a buyer’s market.
And while that may sound good for economic development purposes, Las Vegas is hardly the only community that can attract companies with low-cost buildings for sale or lease.
Brokerage Grubb & Ellis reported last week, for instance, that asking monthly rent for Class A office space in Las Vegas is $2.44 per square foot and runs $1.73 for Class B space — prices dampened by the market’s 23.4 percent vacancy rate, as calculated by the firm.
In Southern California’s Inland Empire area of Riverside and San Bernardino counties — prime competition for Las Vegas when it comes to economic development — those prices are even lower. The region. which lies east of Los Angeles, offers prices of $1.92 for Class A and $1.47 for Class B. That market also is struggling with a high vacancy rate, which reached 23.8 percent in the third quarter.
Other segments of the commercial market in Las Vegas and Southern California are struggling amid oversupply of space, too.
As an illustration of the problems facing the retail market in Southern Nevada, consider the Regal Cinema-anchored Village Square shopping center at Sahara Avenue and Fort Apache Road in western Las Vegas.
Trepp LLC, which tracks commercial real estate, said in a report last week that the 238,000-square-foot plaza was appraised at $74.6 million in 2006 during the height of the economic boom. But since then, successive appraisals have put its value at $38.5 million in early 2009, then to $29 million in July 2010 and, most recently this summer, at just $18.1 million.
Village Square was turned over to investors in its $59.7 million mortgage after its owner defaulted on the note in 2009.
“The loan (holders) could now be staring at a loss of more than 80 percent,” Trepp’s report said.
RCG
RCG Economics, in the meantime, reported the local vacancy rate for the Las Vegas Valley’s 262 anchored shopping centers in the third quarter was 12.8 percent, an improvement from 13 percent in the second quarter — but up from 11.2 percent in the year-ago quarter.
Tenants continue to find good deals, with the average monthly asking rent at $1.35 per square foot, down from $1.52 one year ago and off from $1.75 two years ago.
“The outlook for the local retail market remains subdued,” said Maria Guideng, RCG research manager. “Taxable retail sales numbers reported by the Nevada Department of Taxation so far in 2011 indicate some signs of stabilizing, but we do not expect to see any kind of spike. Continued weaknesses in the valley’s job and housing markets are preventing consumers from returning to their trend rate of spending. Until consumers feel more confident about their jobs and see sustained drops in gas and food prices, or a rise in real disposable income, the local retail market will not improve materially.”
For the office market, RCG reported the Las Vegas Valley is still searching for the bottom, even as the vacancy rate as calculated by RCG fell from 23.5 percent in the second quarter to 23 percent in the third quarter — the first quarter in five years that vacancy rates have dropped.
“The market appears to be declining at a declining rate compared to this time last year,” said RCG owner John Restrepo, who added that including subleased space the actual vacancy rate is more than 30 percent.
In the local industrial market, RCG found the vacancy rate of 16.2 percent remained unchanged from the second quarter to the third quarter for some 107 million square feet in 4,723 projects. The rate was down just slightly from 16.3 percent one year ago.
Amid “fierce competition” among landlords, asking rents of 52 cents per square foot per month declined from 56 cents one year ago, RCG reported.
“The valley’s industrial real estate recession continues to tread water,” Restrepo said. “It will be a long haul to get back to December 2007’s vacancy rate of 6 percent.”
Applied Analysis
Advisory firm Applied Analysis said in its third quarter report that “economic uncertainty continues to impact retailers” in the local market.
Applied Analysis said owners of certain retail space continue to face financial challenges, as asking rents of $1.52 per square foot per month fell 5 percent from last year while the vacancy rate increased from 10.7 percent to 10.8 percent — thanks largely to the bankrupt Borders bookstore chain closing its last four stores in the Las Vegas area.
For the office market in the third quarter, Applied Analysis said the vacancy rate hit a new high of 25.2 percent, up from 23.6 percent last year at this time.
While some analysts are hopeful the office market may finally turn around, Applied Analysis noted that despite the glut of empty space — 12.8 million square feet — more than 750,000 square feet of additional capacity are under construction. The capacity being built is mostly for new city halls for Las Vegas and North Las Vegas.
“Until significant investments in private-sector job creation occur, the valley will continue to experience elevated levels of office-market vacancy,” said Jake Joyce, a senior manager at Applied Analysis.
For the industrial market, Applied Analysis calculated the third-quarter vacancy rate at 18 percent and said that for the first time in 11 quarters the market posted positive net absorption of 145,800 square feet.
The vacancy rate was down slightly from the second quarter (18.2 percent) but up from the year-ago level (16.4 percent).
Despite the quarterly improvement, Applied Analysis offered a sobering thought: “The current industrial market vacancy rate is nearly double its 10-year historical average. At current inventory levels, approximately 12 million square feet of positive absorption would be required to bring the vacancy rate to a pre-recession level of 6.5 percent; a scenario unlikely to prevail during this decade.”
Grubb & Ellis
Elsewhere in its recent report, Grubb & Ellis calculated the Las Vegas-area office market vacancy rate at 23.4 percent in the third quarter.
“Lease rates in both Class A and Class B space continued a steadily decline as landlords compete to attract new tenants,” the brokerage reported. “Overall vacancy is expected to remain relatively flat throughout the rest of the year, as many are waiting to see how strong the economy will be in the first quarter of 2012.”
On the industrial side, Grubb & Ellis calculated the vacancy rate locally at 15.5 percent and said several newly foreclosed or otherwise bank-owned properties are just now entering the local market.
“While landlords may see the increase of vacant industrial buildings on the market as a negative, tenants and investors have many opportunities to lease or purchase warehouse space in highly desirable parts of town at favorable rates,” the report said. “Overall, activity in the local industrial market remains insufficient to reduce vacancies and stabilize rents. Some tenants are hesitant to relocate or renew until after the next presidential election.”