Vegas’ Retail Market Supports Economy Beyond Gaming, Hospitality
There is a lot of buzz in the Las Vegas market a full 10 years after the Great Recession. Much of this buzz surrounds sports with the new Golden Knights hockey team; the Las Vegas Lights professional United Soccer League team; Las Vegas Aces WNBA team; and the NFL Raiders team. The new Raiders stadium is under construction now and is widely considered the most talked-about major development happening in Vegas. In a city that offers unmatched access to world-class gaming, shopping, tradeshows and conventions, the NFL coming to town creates yet another reason for people to visit Las Vegas. As you can imagine, many retailers and investors are trying to position themselves to take advantage of this entry.
The overall vacancy rate for retail in the Las Vegas metro area was 8.7 percent. Rents for new developments range from $2.50 per square foot, triple-net to $4 per square foot, triple-net. Existing neighborhood centers, power centers and strip centers average $1.75 per square foot to $2.25 per square foot. Anchor and mid-box leases average $0.75 per square foot to $1.25 per square foot for both gross and triple-net-structured leases. Ground lease and build-to-suit are averaging $120,000 to $225,000 in annual rents depending on deal terms, though most of these lease structures are absolute net.
There are several new retail developments under construction and in the planning stages in the valley’s suburbs as well. Many of these developments are grocery-anchored centers. For example, Sprouts Farmers Market has three developments under construction and one that recently opened. Smith’s has two stores under construction, one of them being a 124,000-square-foot Smith’s Marketplace. An Albertsons-anchored shopping center recently broke ground in the northwest part of the valley, while a Costco-anchored shopping center just broke ground on St. Rose Parkway in Henderson near the executive airport and the recently announced Raiders practice facility location.
Development is strong in all Las Vegas submarkets, creating a pre-recession feel in the market. The southwest portion of the valley is seeing most of the activity due to growing residential density, proximity to major roads and freeways, and an abundance of undeveloped land. Many are smaller, one-off retail developments with one to five acres. Las Vegas is seeing many categories on the move. These include grocers, such as Smith’s, Albertsons and Sprouts; specialty grocers like La Bonita, Seafood City and Marianna’s; and quick-service restaurants, which are very active and have too many brands to list. Furniture and home good tenants are also entering the market, with brands such as Floor & Décor, Crate & Barrel, Walker Furniture, At Home, Bassett Furniture and West Elm actively backfilling larger spaces in the market. Convenience stores are also very active, with 7-11 and Terrible Herbst being the most active.
The market drivers for retail development in Las Vegas are varied and expanding, but a major consideration is centered on economic diversity away from gaming and hospitality. This includes manufacturing, distribution, healthcare and other industry segments that have brought job growth and, subsequently, suburban sprawl. Forbes magazine ranks Las Vegas as the sixth fastest growing city in America. Privately held land, which is in short supply, continues to be an issue with BLM (Bureau of Land Management) auction sales being the only way to acquire larger parcels.
Market Shopping Center Sales
Suburban Las Vegas is seeing a trend of REITS and institutional owners cycling real estate holdings that have been held for many years. This allows them to take advantage of aggressively low cap rates and, in some cases, completely exit the market. This has opened up opportunities for private capital and new-to-market REITS to acquire quality assets that have never been available. Many of these assets are grocery-anchored and power centers in need of capital improvements and new lease stabilization strategies to grow yields over a longer hold period. Cap rates are ranging from sub-6 to high 9 depending on quality of asset and location recorded.
Core net-leased asset sales remain strong and in great demand thanks to Nevada’s investor-friendly tax climate, with cap rates ranging from 4.5 to 6. We have seen a bit of a correction in neighborhood strip center sales this year, with cap rates ranging from 7 to 8.5. This trend will continue as buyers are being more cautious and unwilling to take a risk with over-market rent rolls.
— By Dan Hubbard, senior director of retail services, Cushman & Wakefield. This article first appeared in the June 2018 issue of Western Real Estate Business magazine.