Industrial Demand, Construction Remains Hot in Las Vegas
Though there was a slight decline in Las Vegas’ overall industrial market activity in the first half of 2016, the remainder of the year will finish strong as the region continues to see significant expansion. Despite aggressive market conditions, demand continued to outpace new supply during the third quarter of this year, while asking rates rose and large distribution centers dominated market activity.
Demand for industrial space in the Las Vegas market increased during the third quarter, with 787,582 square feet of net absorption, bringing the total net absorption year-to-date to more than 2 million square feet. New completions totaled 642,571 square feet and vacancy rates decreased to 4.4 percent, the lowest since the first quarter of 2007. The average asking triple-net lease rate climbed to $0.62 per square foot, per month, the highest since the fourth quarter of 2009.
There are currently nine industrial projects under construction throughout the Las Vegas Valley, totaling nearly 4.8 million square feet. New construction activity has been well above the long-term average since 2015, and will continue to outpace historical levels through 2017. The increase in construction activity has largely been fueled by a combination of a lack of available large bulk distribution space and an uptick in demand from e-commerce-related users. Because of Las Vegas’ central location between Southern California, Arizona and Utah, this market is increasingly being considered as a strategic location for regional fulfillment centers.
One example of a large tenant that recently required regional distribution center space within the Las Vegas Valley is Fanatics, a Fortune 500 company known for manufacturing licensed sports gear, clothing and other merchandise. Fanatics’ 400,000-square-foot distribution center will be located in the Northgate Distribution Center in North Las Vegas. Bed Bath and Beyond will also be moving into a 525,000-square-foot distribution center in the nearby Prologis I-15 Speedway Logistics Center.
The North Las Vegas submarket has experienced the bulk of industrial activity in 2016, with more than 900,000 square feet of net absorption taking place. This represents 44 percent of the market-wide absorption. The North Las Vegas submarket is composed of about 32.2 million square feet, making it the Valley’s second largest submarket. This region had a vacancy of 3.8 percent — 60 basis points lower than the overall market vacancy – as of the third quarter of this year. It also enveloped 66 percent of the total space under construction Valley-wide.
Year-to-date net absorption was positive in five Las Vegas Valley submarkets. The highest net absorption was in North Las Vegas (909,441 square feet), followed by the Southwest (623,146 square feet), Henderson (318,819 square feet), Airport (186,623 square feet) and Central (31,732 square feet) submarkets. Negative net absorption occurred in the Northwest (negative 13,471 square feet).
Optimism is the word for 2017. Las Vegas will continue to be a preferred location for national retailers and e-commerce companies to locate distribution facilities. Increased demand for larger facilities with taller clear heights will facilitate new construction. Lease rates are also expected to continue upward, potentially increasing by 6.5 percent over the next 12 months, while vacancy rates will decline moderately as new construction comes on line.
— By Donna Alderson, Senior Vice President, CBRE. This article first appeared in the December 2016 issue of Western Real Estate Business.