Industrial land shortage could have adverse effect on Las Vegas economy

By Buck Wargo

Fri, Jan 16, 2009 (2 a.m.)

The declining availability of land suitable for industrial development will harm Southern Nevada’s economy and its job growth over time, according to a report released this week by a Las Vegas commercial development real estate association.

The lack of industrial land for warehouses and distribution has long been a concern in Las Vegas and was even highlighted in 2006 at a round table discussion by the Lied Institute for Real Estate Studies at UNLV. But the 86-page report released by the Las Vegas chapter of the National Association of Industrial and Office Properties is the first comprehensive approach to document that, said John Restrepo, the organization’s immediate past president and part of a task force that oversaw the study by the Theodore Roosevelt Institute.

“No one has done the calculations before of what the potential impact would be on the local economy in the long term,” Restrepo said.

Because of the slowdown in the resort industry, economic diversification is becoming more important, Restrepo said. Even though land prices are down for now, those prices will increase as the economy improves and this scenario will play itself out, he said.

“If Southern Nevada continues to sustain costs for delivered goods at levels 5 percent above the national average as it is now paying, over time the expected rate of employment growth will be reduced by 15 percent,” association President Lee Phelps said.

The study specifically cited the relationship between the cost of delivering goods to Southern Nevada and employment growth. It shows how a shortage of parcels 10 acres or more leads to higher land prices and makes it tougher to compete with Phoenix and Southern California, said Ralph Murphy, a member of the task force.

Many companies initially find Southern Nevada attractive as a potential warehouse and distribution center location because of its business-friendly environment, amenities, low taxes, large and affordable job base and access to large markets in Nevada, Arizona and southern Utah. But that interest is offset by the high price of land and scarcity of large parcels for warehouses and distribution, the study said.

Two years ago, the association estimated there were about 1,200 acres of industrial land available for development for big-box distribution. Because of the rate of growth, the region would run out of industrial land in about four to five years, it said. That timeline has been pushed back with the economic slowdown, but the concerns haven’t been alleviated.

Despite its thousands of acres available for development, the Apex Industrial Park north of the Las Vegas Valley has been hindered by its location that requires trucks to drive through the heart of Las Vegas traffic. The lack of infrastructure has also limited its growth. The potential of industrial land near a proposed airport in the Ivanpah Valley, south of Las Vegas, remains potential only.

Warehouses and regional distribution are often overlooked and underappreciated in any discussion about economic development, according to the report.

After five major areas of costs — labor, utilities, rent, freight cost and state corporate taxes — were analyzed, the report shows it costs more to distribute goods to and from Las Vegas than other southwest markets.

Simply by a modest reduction in the per square foot rental costs — whose total is determined in part by land costs — “substantially eliminates disadvantages” to Southern Nevada. For example, the study said a reduction of 3 cents per square foot per month in rent, eliminates 72 percent of the difference, the report said.

“The cumulative impacts of what today appear to be small cost differences will result in major negative impacts on our economy,” said Alan Schlottmann, the study’s leading author. “A cost difference of 5 (percent) to 7 percent can have a major negative impact in the 15 (percent) to 20 percent range on employment growth and income growth if we don’t address these issues now.”

The report doesn’t offer specific solutions, but recommends business leaders and elected officials discuss the issue to help stimulate future growth in the economy, officials said.

Restrepo said all options should be explored, and it’s clear that not addressing them will ultimately harm economic sustainability and quality of life in Southern Nevada.

Restrepo said elected officials need to understand the importance of industrial land when they make zoning decisions.

Much of the valley’s industrial land was lost earlier this decade when local governments sided with property owners who wanted residential designations to increase land value.

Restrepo said it would help if the Bureau of Land Management consider designating federal land for industrial purposes. A similar request is pending before Congress for several hundred acres in Henderson, Restrepo said.

“We forgot about warehouse distribution land because it is so in the background,” Restrepo said. “But it’s important to maintain a healthy economy.”

Restrepo suggested there is a silver lining in the current economic slowdown in that it gives local governments a chance to slow down their pace and revisit decisions they’ve made regarding land use.