Industrial market plagued with rising vacancies

By Buck Wargo

Friday, April 16, 2010 | 3 a.m.

The economic downturn that has shuttered businesses has taken a toll on the Las Vegas industrial market.

Brokerage and research firms reported the overall industrial vacancy rate locally reached 15 percent in the first quarter.

By Applied Analysis’ count, the amount of occupied space represents the lowest level since the fourth quarter of 2006. The vacancy rate of 15 percent is well above the 10.7 percent rate at the end of first quarter 2009, the firm reported.

One positive aspect of the industrial market is that no new space came on the market in the first quarter and only 53,000 square feet is under construction, said Applied Analysis Principal Brian Gordon.

With vacancies continuing to rise, the average rents requested by building owners slid for the fifth consecutive quarter. The rental rates fell from 74 cents per square foot per month at the end of first quarter 2009 to 60 cents per month at the end of first quarter 2010, the firm reported.

Educated tenants that choose to renew their leases remain in a good position to negotiate favorable terms because landlords are desperate to keep up their occupancies, said Dave Dworkin, research manager for Grubb & Ellis. In addition, with commercial foreclosures expected to increase this year, many bank-owned properties are providing more opportunities for tenants to buy or lease buildings at low prices, he said.

Grubb & Ellis had the vacancy rate at 15.7 percent at the end of the first quarter. The northwest valley had the highest vacancy rate at 32.8 percent, while central Las Vegas had the lowest rate at 10 percent. North Las Vegas had a 15.7 percent vacancy rate; the area surrounding McCarran International Airport had an 18.1 percent rate and Henderson had a 13.9 percent rate, the firm reported.

Dworkin said the demise of residential and commercial development over the past two years is behind the sharp increase in vacancy. Several of the service-related companies that support the construction industry have gone out of business or have downsized.

The good news, Dworkin said, is the 5 million-square-foot World Market Center, which showcases the home and hospitality furnishings, attracts about 2,000 exhibiting companies a year.

Gordon said that with the Nevada unemployment rate above 13 percent and little population growth and businesses contracting, it is likely that there won’t be job growth the rest of the year.

The recovery of the national economy may encourage national and regional distributors to seek out Southern Nevada as a low-cost alternative, Gordon said. California businesses may also look to migrate to Nevada, he said.

Applied Analysis Project Manager Jake Joyce said the current conditions suggest that the industrial market hasn’t hit bottom and that rents will continue to decline.

But John Stater, research manager for Colliers International, said sales and leasing activity “foreshadows that the market is bottoming out.” The sector has been hurt by the loss of 20,000 construction jobs over the past year, he said.

“The pace of industrial job losses doesn’t appear to be decreasing,” Stater said. “That means weak demand for industrial real estate through at least the first half of 2010.”

Companies based outside Nevada took 83 percent of all space occupied during the first quarter, and that trend is likely to continue, Stater said.

In 2009, 54 percent of all leases were signed by Nevada-based companies, while 13 percent were California companies, he said.

“Given the state of the local economy, leasing activity by national and regional companies should loom large in the coming months,” Stater said.

Applied Analysis reported the lowest vacancy rate was distribution space at 14.2 percent, while flex space had a 19.6 percent vacancy rate.

The firm said unincorporated Clark County had the highest vacancy rate at 15.5 percent. Henderson had a 15.2 percent vacancy rate and Las Vegas had a 14.6 percent rate, up from 8.3 percent a year ago. North Las Vegas had a 13.8 percent vacancy rate.