Free fall may be over for Las Vegas office sector

By Buck Wargo

Fri, Apr 16, 2010 (3 a.m.)

Southern Nevada’s office market is showing signs of recovery and has seen the end of the free-fall it experienced in 2008 and 2009, according to a first quarter report from Colliers International.

The brokerage said that 27,000 square feet more office space was occupied than vacated in the first quarter, reversing a trend that had been seen in the industry.

In the fourth quarter, nearly 300,000 square feet more space was vacated than occupied. About 320,000 square feet more space was vacated than occupied in the first quarter of 2009.

“While this would normally be considered an anemic performance, two years of (more space being vacated than leased) gives one a different perspective,” said John Stater, research manager for Colliers International.

The vacancy rate increased for the 14th quarter in a row, reaching 23 percent. The 12 percent increase from the first quarter of 2009 to the first quarter of 2010 is the smallest increase since the first quarter of 2007, Stater said.

The asking rents in the first quarter were $2.22 per square foot per month, down from $2.27 in the fourth quarter of 2009 and down from $2.41 per square foot in first quarter 2009, Colliers reported.

Applied Analysis reported a vacancy rate of 23.4 percent at the end of the first quarter, up from 23.1 percent at the end of the fourth quarter 2009.

The firm said asking rents fell to $2.16 per square foot, rates not seen in nearly five years.

Unincorporated Clark County had the highest vacancy rate at 26.5 percent in the first quarter, up from 22.3 percent at the end of 2009, according to Applied Analysis.

Henderson had a 24.5 percent vacancy rate, up from 23 percent at the end of 2009. Las Vegas had a 19.2 percent vacancy rate and North Las Vegas had a 20.4 percent vacancy rate, Applied Analysis reported.

The office market expanded by 84,000 square feet in the first quarter, Applied Analysis reported. During the past 12 months, the market added more than 840,000 square feet, a level not seen since the 1990s, the firm reported.

Applied Analysis Principal Brian Gordon said that with the office market continuing to shed tenants, the purchase price of buildings will continue to decline. That will put more pressure on rents to fall, he said.

The one positive is that falling prices and leases create opportunities for California companies looking to locate to Nevada, he said.

High-end Class A space had the highest vacancy rate in the first quarter at 25.1 percent, according to Applied Analysis. The category’s asking rents fell to $2.67 per square foot, down from $2.79 in the first quarter of 2009.

Grubb & Ellis reported there were less than 50 office lease transactions in the first quarter, a little less than the slightly more than 50 in the first quarter of 2009.

Downtown Las Vegas had one of the lowest vacancy rates at 12.1 percent. The highest vacancy rates were in the southeast, 27.7 percent; northwest, 27.6 percent; and southwest, 26.8 percent.

Colliers said the highest vacancy rate was in the southwest at 31.6 percent, followed by the area surrounding McCarran International Airport at 26 percent. It reported Class A space had a 31.8 percent vacancy rate, while medical office space had an 18.9 percent rate.

Over the past year, health services, insurance services, legal services and financial services companies accounted for 48 percent of the new office tenants, Colliers reported.

Slightly more than half of the new leases were signed by companies headquartered outside Nevada, with California companies the highest of any state, Stater said. In 2010, legal services and real estate service companies dominated the leasing activity, he said.