Las Vegas commercial real estate market softens

Jennifer Robison

Thursday, Dec. 20, 2001 | 11:21 a.m.

The commercial real estate market in Las Vegas has grown briskly over the last decade. However, a stagnant national economy has taken its toll on the market's vibrancy this year, and a local real estate analyst said a year or more may pass before the local commercial market regains its luster.

"We don't expect a local economic collapse, but we've been strong the last decade because of a strong national economy," said John Restrepo, a principal of Restrepo Consulting Group. "Depending on the national slowdown, it could be 12 to 18 months before we see a big recovery. Once the (Federal Reserve) stops lowering rates, we'll see where the economy is going."

Restrepo's comments were part of a presentation by the real estate brokerage Colliers International summarizing the fourth quarter and year-long performance of the Valley's commercial real estate market.

The economic downturn Restrepo referred to is especially apparent in the local office market.

Tom Stilley, a Colliers office broker, said he expects office space vacancy rates to reach 11.1 percent in the fourth quarter -- 16 percent higher than the same period last year. It will be the fourth consecutive quarterly increase in office vacancies, which began the year at 8.2 percent.

"We've seen a weakening in the office market since the first quarter," Stilley said. "A lot of telecommunications companies pulled out of town, and ancillary deals didn't go forward.

"Sept. 11 hasn't affected us that much. Some people have used it as an excuse to sit on the sidelines, but some of those projects will go forward in the first quarter of 2002."

Stilley said an increase in sublease space further indicates a softening office market, as national companies consolidate and local companies abandon space they no longer need or can afford.

"I've done four subleases in the last two weeks, up from none at this time last year," he said.

Though dipping demand for office space pinches landlords, tenants are benefiting from an increase in concessions such as free rent, moving allowances and higher tenant improvement allowances, Stilley said.

In addition, data from the Restrepo Consulting Group and Colliers International show the average monthly lease rate for office space in the Valley has dropped from $1.88 per square foot in the third quarter to $1.81 per square foot now.

Lease rates also have dropped in the local retail market, from an average of $1.69 per square foot to $1.68 per square foot, according to the Colliers/ Restrepo report.

As with office space, vacancy rates among retail developments have crept upward every quarter this year, ending 2000 at 2.1 percent and rising to their current 3.6 percent.

However, the near-term outlook for retail space is positive, according to David Grant, a Colliers retail broker.

"If residential builders keep on building, there'll have to be more retail space," Grant said.

Grant cited planned retail developments at Flamingo Road and Tropicana Avenue where the two streets meet I-215 as evidence local retail growth will continue. Wal-Mart and Lowe's are slated to build stores at Tropicana and the Beltway, while Target and Mervyn's are among the retailers planning sites at Flamingo and the Beltway.

Sustained retail growth is also evident in the brand names moving to the Valley, Grant said. "Over the last two years, we've seen new retailers enter the market," he said.

Retailers like Pottery Barn and Williams-Sonoma plan stores at Charleston and Rampart near Summerlin, said Grant, who added national retailers' growing interest in Las Vegas is a function of the increasing sophistication of local residents.

The local industrial market has performed counter to office and retail space so far in the fourth quarter; vacancy rates have dropped and lease rates have risen slightly from the third quarter.

Vacancy rates fell from 6.4 percent at the end of the third quarter to their current rate of 6.3 percent, though vacancies are up overall for the year from 5.6 percent at the end of 2000.

Pat Marsh, an industrial broker with Colliers International, said activity in the industrial market has slowed slightly in the fourth quarter, but he attributed the downturn to the time of year, which is "typically slow anyway."

Despite a traditionally slow fourth quarter, several commercial developers announced significant transactions and planned developments at the press conference.

Plise Development and Construction announced it plans to build a 2.5 million-square-foot development in Henderson called Sage Mountain Commercial Center.

The 135-acre park, situated at Executive Airport Drive and St. Rose Parkway across the street from the Henderson Executive Airport, will include 1.7 million square feet of big-box industrial space in its first phase, said Michael Townsend, president of Plise.

Subsequent phases will include light industrial, flex and office space, but no retail, Townsend said.

Townsend said Plise is waiting for the Henderson City Council to approve the park's masterplan; upon approval, Plise will begin building the business center's infrastructure, likely in May.

Townsend said businesses at Sage Mountain could employ up to 4,000 people upon the park's build-out in about five years.

Charlie Blenkhorn, director of development for the Howard Hughes Corp., announced the developer plans to build nearly 6 million square feet of office space in Summerlin over the next decade.

Among its plans, Hughes Corp. has allotted 74 acres in Summerlin Centre west of I-215 and 35 acres in its Gardens village at I-215 and Town Center Drive for business parks.

The acreage in Summerlin Centre will include 2 million square feet of Class A office space upon its build-out in five to 10 years; the first office building at the site will emerge from the ground in two to three years, Blenkhorn said.

Blenkhorn said Hughes Corp.'s plans for Summerlin Centre include 1.3 million square feet of regional headquarters sites.

Hughes Corp. had also planned two new seven-story buildings at Hughes Center, but Blenkhorn said those buildings are on hold while parent firm the Rouse Co. attempts to sell Hughes Center.

"We'll come back and look at that development early next quarter if the center doesn't sell," Blenkhorn said.

Other deals announced at the press conference include GES Expositions' plans to assume more than 800,000 square feet of space in a Majestic Realty Co. development west of I-15 in McCarran International Airport's Common Management Area, and Harsch Investment's acquisition earlier this week of 47 acres of land in Henderson near U.S. 95 and Warm Springs Road.