— By Dan Palmeri, Senior Vice President, CBRE —
As Las Vegas reinvents itself as the sports and entertainment capital of the world — while still maintaining the fun factor it has always been known for — the corporate world continues to look at Southern Nevada as a legitimate place to do business. The city saw a record number of Class A deliveries in 2022 and has shown no signs of slowing down through 2023. This is a reflection of the demand for new, functional and relevant office space.
Like most markets, location and quality of buildings are the main drivers for employers as they focus on employee happiness and retention. As Las Vegas has grown from a small desert town in the ‘70s and ‘80s with 505,000 residents in 1983, to a market of more than 2.3 million residents today, the natural geographical growth outward has hit a point where the city has reached the Valley’s boundaries in all directions. What was once a five- to 10-minute commute to the center of town has now become a 20- to 30-minute commute for the mass of suburban dwellers. This has organically led to a focus on a 25-mile stretch from Summerlin Parkway to Henderson along Interstate 215 as the place to be for most office users.
Catering to the demands of the market, Las Vegas saw three Class A deliveries totaling 610,992 square feet in 2022, with 81 percent now leased. The city is on schedule to see an additional 328,770 square feet of Class A office space delivered in 2023, with 20 percent already pre-leased. These new buildings are all located along Interstate 215 and are driving the flight to quality, ease of access for employees and on-site amenities.
Overall market vacancy continues to remain competitive with the other major cities in the Southwest region. There has been a drop in vacancy to 10.4 percent in first-quarter 2023 and more than 273,000 square feet of positive absorption recorded during that same period. With an average asking rate of $2.46 per square foot (full-service gross), the city has set a new record for asking rates.
As the flight continues to the suburban markets, Downtown and Central East submarkets have continued to experience challenges. There is currently nearly 1.2 million square feet of Class A vacancy in these submarkets. This trend of existing tenants relocating to newer suburban office product will likely continue into the latter half of 2023, equating to nearly 1.3 percent of the vacancy numbers not being transactable at this time.
Office investments have also slowed considerably with no Class A or Class B trades taking place in first-quarter 2023. Only 14 sales have been investment purchases, totaling $69.6 million across 397,660 square feet, with an average cap rate of 6.8 percent. Meanwhile, the owner-user market continues to surge as a result of minimal inventory and record-setting prices, with 10 sales totaling 81,135 square feet and an average price of $241 per square foot through first-quarter 2023.