The Zappos effect: Companies follow the retailer downtown
24 September 2012
The economic revival sweeping downtown Las Vegas has ushered into the area restaurants, bars, entrepreneurs and residents. High-rise towers are filling up with renters and ground-floor tenants. Bars are taking over vacant buildings. New restaurant ideas are being hatched, and tech startups might soon outnumber casinos.
As a result, small companies and mom-and-pop retailers are relocating downtown, hoping to cash in on the Zappos effect. Larger businesses, both local and out of state, also are hearing the buzz and trying to get a piece of the action. If the plans being discussed come to fruition, downtown’s economic metamorphosis could soon be complete.
Meadows Bank, for example, wants to open a branch downtown next year at the corner of South Fourth Street and Lewis Avenue in the space formerly occupied by the now-shuttered Community Bank of Nevada.
President and CEO Arvind Menon said the move is motivated in large part by the energy surrounding Zappos and the 61-acre Symphony Park development. A number of small businesses are expected to pop up because of both, and they will need banking services, he said.
“Why not (from) us?” Menon asked.
A Southern California video-game testing company looking to relocate to Las Vegas also is eyeing downtown.
The company needs 30,000 square feet of space to house the 250 employees it would bring to Las Vegas, said Dan Palmeri, a director with Commerce Real Estate Solutions, a Las Vegas brokerage firm. Executives are looking at 302 E. Carson Ave., an 11-story office building with several empty floors, said Palmeri, who is working with the company but declined to name it.
Company officials had been considering Summerlin for a new space, but with all the buzz surrounding downtown, they shifted their focus, Palmeri said.
Meanwhile, several companies have contacted Las Vegas general contractor PENTA Building Group about developing properties downtown, senior project manager Matt Woodmansee said. PENTA is renovating the old City Hall on East Stewart Avenue for Zappos, a $40 million construction project.
Despite the renewed interest downtown, it will likely be a while before another company similar in size to Zappos moves in.
For one thing, there’s not a ton of available space downtown. Office tenants for the most part are law firms and government agencies, stable tenants that don’t frequently move. They help keep empty space to a minimum.
Downtown has the lowest office vacancy rate in the region at 13 percent, well below Southern Nevada’s 24 percent vacancy rate.
And downtown has just five Class A — or high-quality — office buildings. Only four full floors are available for lease, Palmeri said.
At the same time, there are few concrete plans to build more general-use office buildings downtown. Financing is hard to obtain, particularly in a high-vacancy region such as Las Vegas, putting speculative development at a standstill.
What’s more, construction costs in older, more densely populated downtowns often run higher than in the suburbs. Land typically is more expensive, and it can be costly to upgrade aging utilities.
Parking also is usually limited. Developers might have to build a parking structure, whereas in the suburbs, they could use surface lots, Las Vegas economic and urban development director Bill Arent said.
Arent is working with two prospective tenants – one that needs 40,000 square feet and another that needs 60,000 square feet.
“That’s hard to find downtown,” he said.
Efforts are under way to change that. City officials are talking with Zappos, the Downtown Project and developers about how to build more office space. One project on the horizon is the Downtown Project’s Central Container Park at Fremont and 7th streets, which will include 11,000 square feet of retail and 3,200 square feet of office space, shops and restaurants. The complex is slated to open next spring.
New office space also might be built by LV Land Co., a subsidiary of Las Vegas-based EHB Cos., developer of the 28-acre Tivoli Village retail complex near Summerlin.
LV Land has an exclusive negotiating agreement with the Las Vegas Redevelopment Agency to develop two downtown parcels. The company is interested in building up to 150,000 square feet of office and residential space but would need to acquire other nearby parcels for something that big, EHB spokeswoman Terry Murphy said. EHB has not developed any properties downtown but has considered expanding there for several years, she said.
Moreover, Forest City Enterprises envisions building up to 1 million square feet of Class A office space downtown, Arent said. The Cleveland-based developer, which built the new City Hall on South Main Street, owns three blocks of land near City Hall and has said it intends to develop a new civic district there. The company already is talking with prospective tenants for office and ground-floor retail space, said Julie Quisenberry, real estate specialist with the city’s Economic and Urban Development Department.
For now, much of the construction activity downtown involves new retail offerings, including the Park on Fremont beer garden at 506 Fremont St. and the cocktail bar Commonwealth a block away at 525 Fremont St.
Things are picking up so much that there soon might even be speculative development.
The Equity Group, a Las Vegas real estate brokerage, development and management firm, for example in March bought a former Denny’s at the corner of North Las Vegas Boulevard and East Bonanza Road. Principal Brendan Keating expects to tear down the building and build something new, most likely a retail store.
And even though he doesn’t have a tenant lined up, Keating believes the timing was right to buy downtown. Prices are low, he said, and Zappos and city officials are transforming the area.
“We see it coming back sooner than other areas in Las Vegas,” he said.
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