Las Vegas investors remain risk averse, favoring Class A and B properties. Increased buyer demand and a lack of inventory will support more aggressive pricing, with the sellers capitalizing on improving property performance. With stronger operations, Class C owners are encouraged to bring assets to market, pushing deal flow for the properties. The location of the asset is crucial to investors searching for higher returns, which is expected to exceed 8 percent.
With an improving local economy, new construction, strengthening job market and a new “downtown,” we can expect a lower apartment vacancy and higher rents in Las Vegas this year.
The improving local market and strengthen job market is being driven by some noteworthy construction and openings this year. They include the Linq, SLS Hotel (formerly Sahara Casino), the Downtown Summerlin Mall, the Grand Bazaar Shops, the Malaysia-based Genting Berhad’s $4-billion Resorts World Las Vegas (formerly Echelon) and the announcement of the $2.5-billion renovation of the Las Vegas Convention Center. These projects will create more than 15 million direct and indirect jobs.
On top of this, occupancy rates keep rising. The Las Vegas market absorbed more than 3,000 units in 2013. It has absorbed another 760 net-leased units so far in 2014. That has raised occupancy levels from 89.7 percent at the beginning of 2013 to a current level of 92 percent. Rents in 2013 rose a modest 2.1 percent, however, average effective rents this year have already risen by 2.8 percent. They started the year at $762. The current average is $783. It appears managers are no longer slashing rents to improve occupancy.
Multifamily developers are gearing up to the positive statistics. After a 20-year low of only 370 units delivered in 2013, developers are on track to deliver more than 3,000 new apartment units in 2014. Notable new projects under construction are the 360 units at Elysian at The District, 320 units at Chandler Apartment Homes and 100 units at the Lennox.
Las Vegas multifamily key indicators include:
- Las Vegas is one of only eight U.S. markets forecast for additional vacancy decline in the multifamily market through 2014 – a predicted drop of an additional 100 basis points, according to Costar Group/PPR.
- Apartments in Henderson raised rents high enough to enter the second largest average rent tier of $950 to $1,049. This rate increase is encouraging for landlords.
- Concession values decreased slightly in April from 1.1 percent to 1 percent. The 1 percent rate is the lowest we’ve seen since the start of the recovery.
- New jobs helped cut local unemployment from 8.8 percent in March to 7.4 percent in April.
By Art Carll, Managing Director and Principal of NAI Vegas. This article originally appeared in the August 2014 issue of Western Real Estate Business magazine.