‘Mature’ Las Vegas Industrial Market a Safe Bet for Investors, Say InterFace Panelists
A stable economy, lower unemployment rate and diversification of industries are bringing more overall investment activity to Southern Nevada’s industrial real estate scene, noted panelists at InterFace Las Vegas Industrial. Hosted by InterFace Conference Group and Western Real Estate Business, the half-day conference was held April 24 at the Four Seasons Hotel in Las Vegas.
Using the terms “investment” and “Las Vegas” in the same sentence can cause many veteran decision-makers to pause as they remember the state that this city was in 10 years ago. During the Great Recession, Las Vegas was struggling to survive and many were uncertain about the city’s long-term future as visitors shunned Vegas hotels and casinos as they went into self-preservation mode.
“There was nothing more depressing here than the recession when you could drive from one side of town to the other in half an hour because no one was going to work,” said Larry Monkarsh, owner of LM Construction and moderator of the conference’s Developers/Owners panel.
Times have certainly changed, ushering in a new era of investment, commerce and development that has brought a renewed sense of confidence to Las Vegas. Though market players will always have varying opinions, one word reigned supreme throughout the half-day conference — “mature”.
“This is a more mature market than it’s ever been in the past,” said Richard Caldwell, senior vice president of Revere Capital and a member of the conference’s Capital Markets panel. “Lenders are going to remember the crash, and they’re going to remember what happened here. But this is a uniquely healthy market in terms of demand drivers and diversification in the economy. Lenders have a lot more confidence in this market to be steadier in terms of the economy and real estate values than in the past.”
Jarrad Katz, executive vice president and principal of MDL Group, echoed these sentiments. He also praised the Las Vegas Valley region and its players for growing at a steady pace, rather than shooting the moon — a hasty gambling strategy that can easily leave players out of luck.
“Everything I’ve seen built today is built correctly,” he said during the event’s Brokers panel. “This is a mature market because of that. It’s a really exciting time to be a landlord. I’ve watched clients suffer and give away the farm. Now, rates are astronomical and there are no concessions. We’ve seen a huge spike in lease rates just because there are no spaces available.”
Fortune favors Vegas fundamentals
There are a few factors that have gone in Vegas’ favor aside from a strong economy. For one, the Valley region has fewer taxes and a much more business-friendly environment than neighboring California.
“We have seen so much mass exodus from California into Nevada, particularly Las Vegas,” said Caldwell. “We have more runway to go in terms of demand-driven expansion in the industrial sector. In Las Vegas, it’s a bit different than California.”
The Census Bureau noted more than 1.2 million Californians have moved out of the state between 2006 and 2017. Meanwhile, 56 percent of new arrivals in Henderson, a southeastern submarket of Las Vegas, were from California.
“There is not even a comparison between Nevada and California in terms of municipalities,” said Taylor Arnett, vice president of acquisitions at CapRock Partners during the conference’s Developers/Owners panel. “Everyone here actually wants to help you get your project planned. It’s such a breath of fresh air. California developers are throwing their hands up at how hard the process is there.”
Southern Nevada’s proximity to the Golden State isn’t just convenient for new residents, it’s an ideal location for any company looking to transport items along the Western supply chain. Trucks can easily reach Reno/Northern Nevada, Arizona, Utah, Northern California, and, most importantly, Los Angeles and its two ports, within a day’s drive.
These factors have led Las Vegas to record a 3.4 percent industrial vacancy rate in the first quarter of 2019, its lowest level since 2006, according to research from Cushman & Wakefield. This momentum has been chugging along since 2017, when the region saw a record-setting $1.1 billion of industrial properties trade hands. This was followed by $976 million in transactions in 2018.
Room for growth?
The Las Vegas industrial market’s leasing figures paint a similar picture as average asking rents ticked up to $0.64 per square foot in the first quarter of 2019, with flex coming in at $0.94 per square foot, according to Cushman & Wakefield.
Rod Martin, senior vice president of Majestic Realty, observed that this increase in rental rates occurred over a short period of time.
“About 18 months ago, we surpassed the high rents of 2007,” said Martin during the Developers/Owner panel. “Even 12 months ago, you could find sub-$0.50 deals.”
Fellow panelist Doug Roberts, partner at Panattoni Development Co., fondly recalled a time when the good deals could be found in the heart of the Valley.
“I remember when you could buy land in Henderson for $4.25 a foot,” he noted. “Now, you can’t find land for less than $10. You can’t make the rents work. It’s too difficult.”
Most of those sites were eaten up in the current development boom, leaving developers to go north in search of yield.
“Going 10 miles north is inevitable,” said Amy Ogden, senior director of Cushman & Wakefield and a Brokers panelist. “The average land sale there was $4.75 per square foot – that’s double what we saw in 2017. We’ve arguably already doubled that number in the area near the Las Vegas Speedway. We see submarkets like West Henderson and the Speedway expanding. When all that land is absorbed, the naysayers are going to realize they shot themselves in the foot.”
Fellow panelist Jennifer Levine, senior vice president at RealComm Advisors, sees North Las Vegas as just another example of a burgeoning submarket that was once scoffed at when demand first began in the city’s core.
“Everyone thought the Speedway was another planet 20 years ago,” she said. “Now you go out there, and people’s minds are blown at everything that’s being built. Suddenly, within the past few years, all this land went under contract and you’re getting priced out at this point.”
E-commerce and logistics companies have been particularly attracted to this area as it had ample room to grow for some time. Notable transactions in the first quarter of the year include Exel Inc., the supply chain division of DHL, leasing 313,688 square feet at Northgate Distribution Center; Tire Warehouse leasing 93,718 square feet on Craig Road; GLP acquiring a 215,804-square-foot building at Northgate Distribution Center; and Colony Capital purchasing more than 1.1 million square feet of space in two separate transactions.
Vegas can be a great place for e-commerce, warehouse/distribution, incubators and flex players, but what it doesn’t have is manufacturing.
“The challenge with manufacturing is that we don’t have manufacturing here,” said Doherty. “Sheep follow sheep. If we can get one company to build advanced manufacturing, that would go a long way. We also don’t have true vintage product in Vegas. That’s the kind of stuff manufacturers love, especially when they leave a state like California where everything is so constrained.”
Katz believed the California-adjacent location provides a missed opportunity for companies that are hauling across the two states regardless.
“How many trucks are dead-headed back to Long Beach Pier?” asked Katz. “They’re going back empty. A smart manufacturer could cut a deal with the trucking company to get their goods to the pier. They’re going back that way anyway.”
If Vegas’ redemption story has taught us anything, it’s to never count a man out just because the chips are down. If the Valley can play home to all the other industrial products, manufacturing might just stand a chance yet. The past few years have provided a completely different take for Las Vegas — one panelists aren’t taking lightly.
“The big difference is it feels like the market has grown up,” said Levine. “We felt like a tertiary market. People didn’t take us seriously. Now I tell them not only about all the tenants that have come here, but the landlords and investors that have come here. It’s big money. This is something completely different than we’ve ever seen before.”
Doherty can relate to the status-class climb as this once-sleepy market was suddenly thrust into the spotlight.
“I’ve never seen a wave of multi-tenant industrial developers come through Vegas like we’re seeing right now,” said Doherty. “The amount of capital chasing those deals is completely unprecedented being a second-tier market. We almost feel like a first-tier market with the all this capital coming in.”
— Nellie Day
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