Home builders bullish on prospects for Las Vegas

Kevin Ferguson

Friday, Oct. 5, 2001 | 9:53 a.m.

The Las Vegas commercial real estate market is heading toward some of the most depressed levels since 1997, which could hurt small developers, some experts say.

But valley home builders say they are confident that the national and local economic slowdown won't spread to the residential market.

Only 25 percent to 30 percent of planned office building projects will likely get financed and built in the next year, predicts John Knott, managing director of the Las Vegas office of real estate brokerage C.B. Richard Ellis.

In a typical year, about 50 percent of planned projects get built, he said.

"If you are a small developer and you need a pre-leasing commitment in order to get a bank loan, it's unlikely you'll get it," Knott said.

Knott and some of his colleagues said the office and industrial real estate markets were about to rebound before the Sept. 11 terrorist attacks. But now they say any economic recovery won't occur any sooner than mid 2002.

In recent years, the valley averaged an annual absorption rate of 1.2 million to 1.5 million square feet of office space. This year, it will probably be about 1.1 million, Knott said.

The biggest drop is predicted to be in industrial space. While the valley usually averages an annual absorption rate between 4 million and 6 million square feet, this year it's expected to be less that 2 million, Knott said.

Industrial vacancy rates have reached 7 percent and may top 9 percent in the next six months, Knott said. If it does, that vacancy rate would be the valley's highest since 1997.

Vacancy rates in office buildings valley-wide had climbed to 14.5 percent by the end of September. At the end of last year, vacancy rates were at 11 percent, Knott said.

Days after the terrorist strikes on the World Trade Center and the Pentagon, Knott said he pegged the ensuing layoffs in the Las Vegas Valley would reach 30,000 workers.

That would include hotel and convention workers and others who work in supporting industries.

So far, hotel layoffs have topped 10,000. However, the hotel industry is rebounding with a strong push by casinos to market deeply discounted hotel rooms to drive-in traffic throughout the Southwest.

But with slumping consumer confidence and an shaken work force, local residents may think twice about buying a home, said Spencer Ballif, a vice president of CB Richard Ellis in Las Vegas.

"More people will probably continue to rent apartment units," Ballif said.

But some home builders say early indications following the Sept. 11 attacks don't show a slowdown in home purchases.

"First-time buyers may be affected (by the economic slowdown), but our 'Renaissance' buyers have cash reserves, stocks and don't live by month-to-month paychecks," said Ray Landry, assistant vice president of sales for Pardee Homes.

Renaissance in the Seven Hills area of Henderson is an upscale residential community with homes starting at $289,000.

Las Vegas-area home builders have not appeared to slow down their construction, pulling 413 residential home building permits in September. That compares to 396 permits pulled in last year's comparable month.

While low-end hotel workers may be getting the bulk of the pink slips, those aren't typically the people buying homes, said Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association.

"Most of them were priced out of the market a while ago," she said, noting that the median home price in the Las Vegas Valley is $170,000.