Las Vegas Office Market Recovery Gains Momentum
The Las Vegas office market continues to recover and stabilize, capping off 2014 with the 12th consecutive quarter of positive net absorption. Initially slow to recover following the recession, the area’s rebound has recently quickened. The market has an unemployment rate of 7.1 percent, with 2014 being the first year since 2008 to see a rate below 8 percent. Office-related jobs represented 20 percent of the workforce, second only to hospitality, proving the office market is an important part of the area’s growth and vitality.
Class A office space along the I-215 Beltway currently shows strong activity. Las Vegas is home to two suburbs that historically were among the fastest-growing communities in the nation: Green Valley in the southeast and Summerlin in the west. Initially built as a means to connect the populations of these communities, the Beltway now extends around the city, connecting to I-15 in the northern valley. Notable recent developments along the Beltway include Krausz Companies’ and WGH Partners’ Gramercy, a mixed-use office, retail and multifamily project in the southwest that added 175,000 square feet of Class A office space in the third quarter of 2014, and The Howard Hughes Corporation’s Downtown Summerlin, a mixed-use project that will add 200,000 square feet of Class A office space to the west submarket in the first half of 2015. Also underway in the west submarket is Phase II of Tivoli Village, which will add 135,000 square feet of space in the second quarter of 2016. Aside from these projects, construction is slow and a pending scarcity exists for well-located, higher-end office space. A renewed desire for call center and back office space has made the shortage of large contiguous space evident. As the Millennial population grows, tenants are also more interested in creative office space, characterized by an industrial look featuring open-plenum ceilings, more light and open, collaborative areas. While user activity was previously thin, resulting in a market where landlords were forced to aggressively compete for tenants, the shortage of desirable space is giving landlords traction. Many investors recognize the ongoing transition, with firms like WGH Partners, Hines, Dornin Investment Group and MIG Capital adding several Class A and B office properties to their portfolios.
The office market’s recovery is underscored by a 2013-2014 net absorption of 2.6 million square feet, the highest in consecutive years since 2.85 million square feet was recorded prior to the recession in 2006-2007. Large move-ins of the past 24 months include MGM (230,000 square feet), Barclays (91,000 square feet), Asurion (90,000 square feet), Allegiant (user sale: 86,000 square feet), Solar City (82,000 square feet), HMS Business Services (64,000 square feet) and C3 (64,000 square feet). With office demand outpacing construction, vacancy rates continue to steadily decline. At 21.2 percent, the fourth quarter overall market vacancy rate is at its lowest point since the second quarter of 2009 when it was at 21.1 percent. Moving forward, the sustained growth of the past two years should continue to aid the job market and decrease market-wide vacancies. Eventually, more development needs to occur, but for now, the Las Vegas office market recovers and remains poised for future expansion.
By Brad G. Peterson, Senior Vice President, CBRE Las Vegas. This article originally appeared in the April 2015 issue of Western Real Estate Business magazine.