We all know the recent recession was hard on the Las Vegas commercial market. The good news is that a recovery is now well underway. End users are moving quickly to take advantage of historically low interest rates, which are coupled with potential rental income streams in buildings and office projects that are mostly vacant. The overall market vacancy rate is currently estimated to be at about 25 percent. For tenants that need larger spaces, however, that number can be misleading. Smaller tenants have more options, and Downtown Las Vegas continues to outperform the rest of the market, with only a 10 percent vacancy rate.
Although it’s still a tenant’s market, they no longer have the leverage they once had during the middle of the downturn. Landlords are tightening concessions and seeking stronger tenant commitments, though many investors have budgeted tenant improvement dollars during acquisition and underwriting. Investors are now willing to spend these dollars to acquire quality tenants, which previously would have presented a tough sell to banks, receivers and servicers. Most other concessions remain similar to other years, with landlords standing somewhat firmer in the negotiating process.
Given these conditions, Las Vegas is now seeing activity in all submarkets. Stronger credit tenants are seeking newer and better-located spaces along the beltway. Smaller administrative office users and industry players, such as brokerages, title companies and insurance agencies, are looking for opportunities to purchase in older submarkets. A few major companies made significant moves in Las Vegas over this past year as well. They include the Blackstone Group, Allegiant Air, MGM Resorts International and Barclaycard.
On the development front, there is still little talk of speculative projects. Users that require more the 25,000 square feet have limited options at well-located properties. The addition of the third Gramercy building, a 95,443-square-foot structure off I-215 and Russell Road, should ease this burden a bit. As the economy improves and demand for space increases, the development market is likely to follow suit.
The strength of the Downtown market, in a city with a historically weak central business district, is a very popular trend right now. Zappos.com recently moved into its new corporate headquarters in the former Las Vegas City Hall building. Its CEO, Tony Hsieh, is committed to the Downtown Project. He has made major investments in the area and encouraged other business leaders to do the same. So far, the results have been positive for the central city, and for the Las Vegas Valley as a whole. Of course, the demand for creative office remains a topic of conversation, especially in Downtown, but this demand is usually overestimated, at least for the time being.
The recovering Las Vegas market continues to offer great opportunities for savvy investors. Prospective tenants can negotiate favorable leases on space customized to meet their needs. To some degree, the market is restructuring to reflect new realities of a post-recession economy. Older buildings are being repurposed creatively as demand catches up with a fragmented inventory. Most analysts envision a bright future for Las Vegas.
— By Eric J. Larkin, CCIM, and Mark J. Musser, Partners, NAI Vegas. This article originally appeared in the March 2014 issue of Western Real Estatea Business magazine.