Market Moves
There is so much fascinating discussion happening around the Las Vegas office market: what is the future of the suburban office? How does layout truly affect the culture of a company? Is parking a dying amenity?
For the Las Vegas office market, it is just as easy to be captivated by imagining the possibilities of tomorrow. The post-recession recovery has seen office as the last product type to get healthy. The resort corridor led the way with a few new developments, like the T-Mobile Arena and Lucky Dragon Hotel, but there were many significant rehabs and upgrades as well. Multifamily and industrial followed closely behind, not surprisingly. What is interesting is that multifamily developers, as well as industrial, have been delivering product classes the valley has not experienced in any previous cycles. These include integrated apartment communities with over-the-top lifestyle amenities, and big bomber industrial buildings with the latest fixings of the day.
Hayim Mizrachi, MDL Group
Office development completions, however, have been limited to niche plays like the 140,000-square-foot Federal Justice Tower, and relic projects like Downtown’s 200,000-square-foot One Summerlin. Some of these projects were carried out by new owners, some with a lower basis. These buildings filled up and are now being trailed by a flurry of build-to-suit projects in the attractive southwest submarket. Those include the 180,000-square-foot UFC corporate headquarters; a 152,000-square-foot office building for Credit One Bank; a 40,000-square-foot building for the Greater Las Vegas Association of Realtors; and MDL Group’s new 11,300-square-foot corporate office. The pipeline contains a total of 570,361 square feet of office space currently under construction at the end of the fourth quarter of 2016.
There have been five consecutive years of healthy net absorption. Total office inventory is approaching 63 million square feet, while overall market vacancy is at 14.9 percent and asking rates increased to $2.03 per square foot on a full-service gross equivalent at the end of the 4th quarter of 2016, per CoStar. By contrast, the pre-recession average for the market was 9 percent vacancy, according to Colliers Las Vegas.
With a limited construction pipeline, continued positive absorption, decreasing vacancy and increasing asking rates… is Las Vegas ready for new spec office development?
Under Construction
The Square is a for-sale office condo development in the southwest submarket that will deliver 22 units ranging from 1,488 square feet to 2,730 square feet. The total project size is 36,722 square feet.
Sunset Hills Plaza is a three-story, 20,000-square-foot building under construction in the southwest submarket. The second and third floors will be completed with spec suites, with the building scheduled for completion this August.
Planned Construction
Gardner Company was selected by an RFP process to develop the UNLV Harry Reid Research and Technology Park, which will absorb about 122 acres in the southwest submarket. The project will commence with a 150,000-square-foot, five-story steel and glass building.
Howard Hughes Corp. also announced it is expanding its Summerlin project, with a planned six-story, 152,300-square-foot office building.
The company also just announced plans for two, three-story office buildings with 90,000 square feet each at the northwest corner of Flamingo Road and Hualapai.
The Mark of a Market
Expect continued positive momentum through 2017 with the overall business climate getting reluctant toward the end of the year and into 2018. There is deep scare tissue from the Great Recession. People will get gun shy on decisions, maybe slightly before they actually should. Major developers will look for the market to prove it needs more product before committing the way their multifamily and industrial peers have in the past.
Macro drivers in Southern Nevada that continue to encourage include the visitation numbers at McCarren International Airport; a total of $13.9 billion in the 10 largest capital projects alone in Southern Nevada, according to the Las Vegas Global Economic Alliance; and the strong prospect of the Las Vegas Raiders coming into town with a new stadium.
As a local native, when you step back and look at these macro drivers, it certainly feels like Vegas is maturing. It appears the city might be ready to settle down into a long-term, stable relationship, though it’s still wild about reinvention, and will continue to transition from a Western gambling town to a world-class city.
— By Hayim Mizrachi, President and Principal, MDL Group. This article first appeared in the March 2017 issue of Western Real Estate Business.