Las Vegas Sun

March 29, 2024

Commercial real estate recovery may be two steps forward, one back

SHORT LIST

Bixby lands in Las Vegas

Orange County-based Bixby Land Co. has acquired two industrial properties in the Las Vegas Valley—a 129,000-square-foot building at 7600 Eastgate Road in Henderson for $8.25 million, and a 220,000-square-foot building at 4335 Arcata Way in North Las Vegas.

Former NLV mayor gets new gig

Voit Real Estate Service has named former North Las Vegas Mayor Mike Montandon as managing director of operations in Las Vegas. He’ll oversee commercial real estate services on behalf of area investors, banks, financial institutions and special servicers for which Voit is surrogate owner of their distressed assets.

Commercial vacancy rates increased in the first quarter in a continued sign that local businesses remain too weak to grow and out-of-state companies aren’t moving into the market in large numbers.

Colliers International Las Vegas reported that the office, industrial and retail vacancy rates rose by the end of March just as they had during the fourth quarter of 2010.

Commercial vacancy rates, especially the office sector, had shown some improvement during the third quarter of 2010, but that positive news now appears to be short-lived.

“I think some people jumped the gun when they saw some improvement,” said commercial analyst John Restrepo, principal of Restrepo Consulting. “It has to be sustained for several quarters. We’re finding out the nature of this recovery will be two steps forward for one back.”

Colliers recently reported the industrial vacancy rate was 15.8 percent in the first quarter, up from 15.7 percent in the fourth quarter and 14.5 percent in the first quarter of last year.

In the Las Vegas retail market, the vacancy rate was 11.5 percent, up from 10.6 percent in the fourth quarter and 9.7 percent in the first quarter of 2010—that’s a nearly 20 percent increase.

The office vacancy rate stood at 24.8 percent at the end of the first quarter, up from 24.1 percent in December and 22.7 percent in the first quarter of 2010.

“As it stands, Southern Nevada needs an infusion of investment from outside the valley because waiting on the hospitality market to pull us out of recession by itself will take a long time,” said John Stater, Colliers’ Las Vegas research manager.

Stater said 2011 promises to be much like 2010, but there’s hope a stronger national job market and consumer spending will provide some relief in 2012.

Other firms will release their numbers this month that should paint an even more detailed picture.

Restrepo said the valley’s commercial markets will continue to bump along the bottom until there’s significant job growth. That will only come when the national and local recoveries strengthen sufficiently to produce jobs at the historical rates.

The region’s economic development efforts for the past 20 years hinged on the business climate in California getting so bad that companies would flock to Nevada in large numbers. They have gone to Arizona and Utah instead, he said.

Companies either move or expand to other markets based on a variety of factors, including access to markets, quality of the workforce, community image and in the area’s education quality, Restrepo said. Rarely, if ever, is the tax structure a driving reason, he said.

“That has ultimately proved to be ineffective, and the flaws in the strategy were exposed by the Great Recession, when we looked around and saw that the Las Vegas economy was not much more diversified today than it was 20 years ago,” Restrepo said. “If that strategy had worked, we wouldn’t have the highest unemployment rate in the country.”

Industrial sector

Colliers reported that 22,000 square feet of new space came online in the first quarter and 159,000 square feet of space became available than was vacated.

Henderson and areas surrounding McCarran International Airport fared the best with more space occupied than vacated, Colliers reported.

“Like most segments of the commercial real estate market in Southern Nevada, the industrial market appears to be moving in fits and starts towards recovery,” Stater said.

The industrial average asking rent was 54 cents per square foot on a triple-net basis, Stater said. That’s a 1-cent increase over the fourth quarter of 2010.

Office sector

The absorption rate was 77,378 square feet in the red in the first quarter when 225,000 square feet was completed.

The office market had two consecutive quarters where more space became available than was filled after the third quarter of 2010 was positive.

High-end Class A space and lower-end Class C space had more space occupied than vacated in the first quarter.

The amount of distressed office space increased in the first quarter to 5.4 million square feet, an increase of only 20,000 square feet from the fourth quarter, Colliers reported. A notice of default qualifies as distressed.

The rents requested for office space was $2.05 per square foot on a full service gross basis, Stater said. That’s a 3-cent decrease from the fourth quarter of 2010.

“Asking rents are still falling but at a much slower pace,” Stater said. “Sales activity is up sharply from two years ago and less office space is falling into the distressed category than in the past three years. All of this suggests that the office market is now bouncing along the bottom and that the worst is over.”

Retail sector

More than 190,000 square feet of space became available than was filled in the first quarter, Colliers reported.

Most of the leasing so far this year has been with local retailers, Stater said. The most active retail categories were furniture stores, eating and drinking establishments and business services.

Sales tax revenues have improved but Stater said the slow absorption of space means the retail sector has some problems.

As 2011 began, the increase in retail sales, gaming revenues and visitor volume suggested a recovery was possible but several national retail chains closed their doors during the second half of 2010, Stater said. Local retail employment, which had improved in 2010, dropped off again in early 2011. That dampens any significant recovery in the first half of this year, he said.

The retail average asking rent was $1.55 per square foot on a triple net basis, unchanged from the fourth quarter of 2010.

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