23.5 percent of office space in Las Vegas is now vacant

By Buck Wargo

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

The Southern Nevada office market regressed in the second quarter in a sign that the region’s recession is far from over, according to Colliers International Las Vegas.

The firm reported an office vacancy rate of 23.5 percent at the end of June, up from 20.4 percent in the second quarter of 2009.

CB Richard Ellis reported a 25.4 percent vacancy rate in the second quarter, up from 24.6 percent at the end of March. Grubb & Ellis, meanwhile, reported a 23.7 percent vacancy rate, up from 22.3 percent in the first quarter.

Colliers International Managing Partner Mike Mixer said the office market faces many challenges. The vacancy rate has risen for 15 consecutive quarters, nearly four years. The average rent requested by landlords in the second quarter was $2.17 per square foot per month, a four-year low.

CB Richard Ellis said the asking rent has fallen 57 cents per square foot per month in the past year.

The good news for the office market is that both the annual and quarterly office employment growth was positive for the first time since the first quarter of 2008, Mixer said. Those gains should translate into more office space being absorbed by early 2011, he said.

Office foreclosures, however, remain a concern and requested lease rates should decline more because troubled projects are being bought at deep discounts, brokerages said.

Properties that have received a notice of default or are in some stage of foreclosure totaled 4.4 million square feet in the second quarter, up from 3.6 million in the first quarter, Colliers reported.

What has helped the vacancy rate is that no office space was added during the second quarter and only 90,000 square feet were completed in the first quarter, Colliers reported.

Most office space still in the planning stages is near McCarran International Airport, analysts said.

The highest vacancy rates were in the southwest valley at 32 percent and northwest at 26.5 percent. The area surrounding McCarran had a 25.1 percent vacancy rate.

The lowest vacancy rate was downtown Las Vegas at 13.5 percent.

High-end Class A space had the highest vacancy rate at 30.8 percent, while medical office space had the lowest rate at 19.5 percent, according to Colliers.

Of those vacating office space in the second quarter, 33 percent were involved in health services, 23 percent in real estate and 22 percent in financial services, Colliers reported.

Of those taking space in 2010, almost half were involving in financial services, health services and professional services. Health companies and insurance companies made up one quarter of firms taking office space. Much of it involves companies moving within the market, analysts said.

Grubb & Ellis, citing a report from CoStar Comps, said during the first half of 2010, the 16 transactions of office buildings of 5,000 square feet or larger totaled $25 million. A year ago at this time, the nine transactions totaled $29 million, with one transaction of $15 million.

The increase in buyer activity is an indication that some investor confidence has started to return, analysts said.