Las Vegas’ retail market is now clearly showing the strain of the recession. Decreased consumer spending has directly impacted local retailers, as unemployment climbs and shoppers find themselves with less discretionary income. Holiday season revenues were the weakest on record, and luxury stores, apparel chains and department stores all reported declining sales. Meanwhile, developers continue to experience difficulties securing financing for planned projects. As a result, several planned projects are on hold, and few of the currently planned and under construction projects should open in 2009 and 2010.
Underperformance, the liquidity crunch and tighter credit terms with vendors, combined with the recession, made it impossible for many large box retailers to remain in business, thus bringing on the vast amount of power center vacancies. Small local retailers relied on SBA loans and equity from residential properties and saw both of these sources vanish, thus preventing many from opening new stores and leaving many strip centers with higher vacancies. Retailers that are performing well are very cautious regarding expansion.
With already close to 3 million square feet of vacant large box retail space in the Las Vegas market, expect to see vacancies continue to rise this year. However, increased vacancies provide other retailers an opportunity to penetrate the market. Hispanic grocers are showing aggressive expansion plans, and new entertainment users are evaluating the market as well.
Las Vegas’ higher land values in recent years moved the trend toward mixed-use developments. With the correction in land values, the focus will be back to basic developments, redevelopment and in-fill locations.
The view here is that the slide will continue through 2009. Toward the end of 2009 and into 2010, the market should see increasing absorption, reduced unemployment and stabilization in the residential market. With CityCenter, Fountain Bleu and Cosmopolitan completing in 2009-2010, the future looks very promising.
Many out-of-town developers and investors still consider Las Vegas to be a great market. Many are strategizing to take advantage of the down market and acquire developable land and centers that are in default, positioning themselves for a market turnaround. If Las Vegas’ growth factors stay true to form, it will rebound much faster than the rest of the country.
— Zack Hussain is a senior associate for CB Richard Ellis.