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The retail market in Southern Nevada in mid-2013 continues to mirror the broader economy, with some bright spots and some declines in performance. There appears to be a belief (or maybe a hope) by many market observers that if there hasn’t been enough improvement in Las Vegas to date, then it has to be occurring in the near future. It seems the effects of the Great Recession are still lingering and the economy hasn’t yet built up a sustainable head of steam as measured by true objective metrics. A good measure of the local economic health is unemployment statistics. The unemployment rate in Las Vegas has dropped from 9.8 percent to 9.7 percent from February to July of this year, according to the Bureau of Labor Statistics.
On another bright note, an additional 1.83 million square feet of retail space was under construction at the end of the second quarter of 2013. More than 70.1 percent of this total space was preleased. General Growth Properties’ The Shops at Summerlin comprises 1.5 million square feet of current construction. It is expected to open in late 2014 and is already more than 85 percent leased to tenants like Dillard’s and Nordstrom Rack.
The average quoted rental rates have continued on a slight decline over the past few years, with the average quoted rates of $15.45 per square foot, per year at the end of the second quarter. While averages can be somewhat misleading when used on a broad scale, the trend is important. The relative flatness of rental rates is indicative of the current slow rate of economic growth. There is an eagerness by landlords to secure tenants, while tenants are trying to keep their occupancy and operating costs to a minimum to stay competitive. Our research has shown that the requests for rent reductions have declined significantly in 2013 when compared to 2012.
Location will continue to play a big factor in retail center performance moving forward. High-density submarkets show stronger signs of recovery through stronger rental rates and lower vacancies. Centers located in low-density submarkets or poorly designed centers will recover at a much slower pace, extending the stress on these assets.
While the diminishing supply of value-add properties are attracting multiple offers from investors, we are seeing more stabilized buyers entering the market to acquire newly stabilized product. Cap rates have continued to decline even in the face of increases in the cost of debt due to the competitive purchase environment in our market and the lack of quality product. We believe there will be some upward pressure on cap rates on a risk-adjusted basis as the cost of debt continues to climb.
Overall, there are many positive indicators that our market is slowly improving, although it is hard to be certain with many key economic factors still in a state of flux.
— Cathy Jones, president, Sun Commercial Real Estate