Net absorption in the first half of 2014 for the Las Vegas office market is positive, by about 500,000 square feet, causing the total office vacancy rate to decline valley-wide.
This market has a total office inventory of 60.7 million square feet in 3,860 buildings. About 900,000 square feet remains under construction at the end of the second quarter — about 800,000 square feet of which is speculative development. This is interesting, considering the overall market vacancy is hovering around 20 percent.
Average quoted asking rental rates decreased slightly to $1.88 per square foot, per month ($22.56 per square foot annualized) on a full-service gross basis.
Concessions, incentives and tenant improvement allowances to secure tenants continue to vary from project to project. The assumption that a tenant could expect to receive up to one month free rent per year of lease term may be a declining trend in the coming quarters. The newer trend is landlords completing speculative build-outs in vacant suites, though this is still not the norm.
Investment sales in the first half of 2014 decreased from the previous year, with about 800,000 square feet of properties sold at an average price per square foot that was slightly above $130. Cap rates crept above 8 percent in the first half of 2014, up from mid-7 percent in 2013.
The Nevada Department of Employment, Training and Rehabilitation reported a new job growth rate of 3.1 percent, as well as a 2.1 point drop in unemployment for Las Vegas.
While there is a direct correlation between the employment rate and office occupancy, a national trend shows the typical office user is occupying less space per employee. Companies learned to do more with less, and we saw part-time personnel doing the work of full-time employees. Employees are sharing work stations, and a portion of the workforce is working remotely. There are also experiments in co-working.
Visitor volume to Las Vegas is at an all-time high. The airport is now positioned for a wave of international visitation. This ties into the Las Vegas Convention and Visitors Authority’s $2.5-billion global business district project, which includes pursuing a World Trade Center designation at the Convention Center to enhance international business opportunities.
The Las Vegas Global Economic Alliance restructured and named Tom Skancke president and CEO. His view of the region is influenced by his storied career in transportation and infrastructure.
While we know that not one single development or transaction defines the market, we’re optimistic and encouraged about the office market.
By Hayim Mizrachi, President and Principal of MDL Group. This story originally appeared in the August 2014 edition of Western Real Estate Business magazine.