Randy Broadhead, CBRE
Although the Metropolitan Las Vegas office market has not experienced the robust recovery seen in other sectors, it has shown three years of moderately steady growth. With net absorption of 341,976 square feet through the second quarter of 2015, the area is experiencing the 14th consecutive quarter of positive net absorption, while the vacancy rate is at the lowest level since the first quarter of 2009. The steady improvement in the Las Vegas office market is largely attributed to the city’s economic rebound, particularly in employment. The Bureau of Labor Statistics pegged the unemployment rate for Las Vegas at 6.6 percent as of May 2015. It’s also the first month to see an unemployment rate below 7 percent in nearly seven years. Office-related employment represents about 28 percent of the total labor force, second to only hospitality employment, and has played a critical role in the area’s economic recovery. In addition to the buoying job market, housing has improved, contributing to the economic recovery. New home starts increased by 45 percent year-over-year in the first quarter of this year, according to Metrostudy, while the average asking home price increased by 12 percent in the same time period.
Las Vegas has followed the national trend of tenants’ flight to quality in office space. Demand for Class A office, particularly along the I-215 Beltway, has seen relatively strong activity. About 68 percent of the total net absorption in the market occurred in three submarkets along the Southern Beltway, including the West, Southwest and Southeast since the office market recovery began in the first quarter of 2012. This is primarily due to the easing of access to two major communities that comprise the primary source of office workers: Summerlin and Green Valley. Almost all of the newly constructed Class A office space has occurred along the Southern Beltway. Some of these projects include the Gramercy, which is being developed by the Krausz Companies and WGH Partners, and the newest Class A project, Howard Hughes Corporation’s One Summerlin, which added about 200,000 square feet and was nearly 50 percent preleased when construction was completed in the second quarter of this year. There are only two significant projects currently under construction that will be completed in the next 12 months. This includes Phase II at Tivoli Village at Queensridge, which will add about 135,000 square feet of Class A space in the West submarket, and the Federal Justice Tower, which will add about 140,000 square feet in the Downtown area later this year.
The Las Vegas office market continues to face a shortage of large contiguous space as a result of renewed interest by call centers and other back-office users. Several developers have taken a creative approach by repurposing vacant big-box retail space to functional office space. One example is the former Dillard’s space at Boulevard Mall. Dillard’s vacated the building years ago, and the new owner is now redeveloping this space into a new 100,000-square-foot office building.
Las Vegas’ office market is experiencing an overall steady and healthy growth. Looking forward, we are expecting to see further compression of vacancy rates and higher rental growth, in addition to the announcements of new projects that will spark an expansionary phase in the Las Vegas market.
By Randy Broadhead, senior vice president of CBRE. This article originally appeared in the August 2015 issue of Western Real Estate Business magazine.