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The Las Vegas market, one of the hardest hit by the recession in the nation, is showing continued signs of economic recovery. Visitor volume is exceeding peak levels, hotel occupancy rates are averaging ±90 percent, unemployment levels continue their decline (9.5 percent in June 2013) and numerous renovations and new resort development projects continue to be announced. As recently as a year ago, experts were predicting that there would not be another major resort project in Las Vegas for at least 10 years. Then came the announcement by Malaysia-based Genting Group of its plans to construct a $7-billion, 3,500-room, Chinese-themed resort project on the Strip, and suddenly that prediction was put to rest.
In similar fashion, the industrial market, which currently contains 103 million square feet, continues to show consistent signs of recovery. More than 1.6 million square feet of positive net absorption was reported as of the second quarter of 2013. This is more than we’ve seen in the past five years combined. Vacancy rates stand at 14 percent, a 1 percent decrease from the second quarter of 2012. Average asking rates for warehouse distribution product across the MSA are $4.68 per square foot, down about 50 percent from the market’s peak in 2007. This decrease in rates over the past several years has placed Southern Nevada back in play from a competitive standpoint. Many companies have taken advantage of this opportunity to expand or relocate their businesses to Southern Nevada, contributing to stabilized lease rates and lower vacancy.
With virtually no new construction over the past several years, this surge in activity has had an impact on the forward supply of warehouse distribution space, limiting the number of options available, especially for larger users of 150,000 square feet or more. Given that land prices have also reset by as much as 70 percent from their unsustainable highs in 2007 and 2008, users are now in a position to pursue build-to-suit opportunities to meet their specific requirements. Both the 296,000-square-foot Fed Ex Ground facility in Henderson and 215,000-square-foot Nicholas Foods’ facility in North Las Vegas are direct results of the shortage of larger available space for lease. Other recently completed build-to-suit projects include the 130,000-square-foot SHFL Entertainment building by Panattoni, as well as the 300,000-square-foot Switch Communications colocation facility. There are 13 build-to-suit prospects in the market today, nine of which contain more than 200,000 square feet.
Industrial investment and owner-user product is difficult, at best, to find in Las Vegas. This shortage has resulted in a limited number of transactions. The most notable trades included the acquisition of the the 1.6-million-square-foot Lehman portfolio by Prologis and the 420,000-square-foot Cheyenne Distribution Center, a single-tenant leased facility.
As the industrial market improves, we are beginning to hear whispers from a number of our local developers about potential speculative product. Most of them are monitoring improving lease rates and vacancies of the various product types in specific submarkets as they carefully determine the appropriate time to start construction. All in all, we are feeling the positive effects of a recovering market.
— Mike Hillis, principal, and Susan Borst, director, Cushman & Wakefield | Commerce