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February 11, 2012

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Report paints gloomy picture of Las Vegas commercial real estate

By Steve Green (contact)

Friday, Nov. 6, 2009 | 2:05 a.m.

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Live event

  • The Urban Land Institute is hosting an event at 7:30 a.m. Nov. 18 at the Orleans to discuss local market conditions and the Emerging Trends in Real Estate 2010 report. For more information, call 800 321-5011 and mention 8144-1004.

When it comes to optimism about commercial real estate, Las Vegas received an unsurprising negative mention in a national report issued Thursday by the Urban Land Institute and accounting firm PricewaterhouseCoopers LLP.

The institute and accounting firm issued their Emerging Trends in Real Estate 2010 report, based on interviews and surveys involving some 700 industry professionals around the country.

"After more than a year spent in suspended animation lagging already shattered housing markets, the commercial real estate industry hits bottom in 2010, suffering a surge of painful writedowns, defaults and workouts," the report projects.

"Recession-proof" Washington, D.C., with its stable government employment base, is the nation's best commercial market, the report said.

"San Francisco, Boston and New York maintain reasonably positive long-term outlooks despite carnage to key employers, especially in the financial industry," the report said.

"Florida markets and Southwest desert citadels — Phoenix and Las Vegas — take it on the chin from housing meltdowns and condo/resort overbuilding," the report said.

Nationwide, the report said, Las Vegas and Phoenix aren't alone in suffering through the recession.

"Commercial real estate industry investors and professionals remain decidedly negative, colored by distress over prospects for an extended period of anemic demand and costly de-leveraging," the ULI and PricewaterhouseCoopers report said.

Survey respondents predict that nationwide commercial real estate vacancies will continue to increase and rents will decrease across all property sectors before the market hits bottom in 2010, the companies said.

Participants projected national value declines of 40 percent to 50 percent off 2007 market peaks. Survey participants also believe that 2010 and 2011 will present buying opportunities at or near cyclical low prices.

The sentiment about Las Vegas is similar to that in last year's ULI-PricewaterhouseCoopers report.

Of 50 markets included in the survey from an investment viewpoint last year, Las Vegas and Pittsburgh were tied at No. 44 with a survey score of 3.59 on a scale of 1 to 9, with 1 being abysmal, 5 being fair and 9 being excellent.

Seattle topped the 2009 list at 6.15, followed by San Francisco, Washington, D.C., New York and Los Angeles. Trailing Las Vegas and Pittsburgh at the bottom of the 2009 confidence index were Columbus, Milwaukee, New Orleans, Cleveland and Detroit.

The comments about the struggling local market in the 2010 report should come as little surprise to Las Vegas market watchers, who are witnessing unprecedented unemployment locally of 13.9 percent and have seen hotel occupancy dip 6.9 percentage points to 81.4 percent in August compared to August 2008.

Also, third-quarter numbers on the local market from Colliers International--Las Vegas showed:

• Industrial vacancy hit 13.3 percent, a 3.4-point (or 34.7 percent) increase from one year ago.

• Office vacancy climbed to 22 percent, a 4-point (or 22.2 percent) increase from one year ago.

• Retail vacancy reached 8.6 percent, a 3-point (or 52.8 percent) increase from one year ago.

Nationwide, those surveyed believe capital will flow back into commercial real estate by the end of 2010. Until then, cash buyers should find some bargains.

"Our report participants find that a sense of nervous euphoria is growing among liquid investors who can make all-cash purchases," ULI Senior Resident Fellow for Real Estate Finance Stephen Blank said in a statement. "Those that are patient, daring and selective could score generational bargains on premium properties from both distressed sellers and banks that are clearing out unwanted bad loan and real estate owned portfolios. However, once the property market recovery begins and gains traction -- likely before 2012 -- any rebound could be restrained by a lackluster economy and rising interest rates."

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