Opportunity, Demand Define Las Vegas Industrial Market
The Las Vegas industrial sector set records in 2017, with more new construction and higher net absorption than any other time in the market’s history. New construction was dominated by pre-leased space primarily driven by transportation and logistics companies, namely ecommerce and retail-related businesses. As a result, the overall vacancy rate decreased to the second lowest level in market history. As a percentage of overall market size, Las Vegas led the country in both new construction and net absorption.
The significant momentum of 2017 did carry over to the first quarter of 2018, albeit at a relatively slower rate. New construction totaled 1.3 million square feet and net absorption lagged deliveries at a positive 1 million square feet, marking the 22nd consecutive quarter of positive net absorption. The overall direct vacancy rate in the first quarter of 2018 was 4 percent, an increase of 50 basis points over the previous quarter. This provided much-needed inventory for tenants looking to enter or expand into the Las Vegas market.
While the North Las Vegas submarket dominated 2017, accounting for nearly 70 percent of total net absorption, it is the Southwest submarket that is surging in 2018 with 53 percent of net absorption in the first quarter. Market-wide, net absorption in the first quarter of 2018 was more than 1 million square feet, with tenants who occupy distribution/warehouse space comprising 44 percent of the total net absorption. Notable deals include Xtreme Green Electric Vehicles leasing 124,546 square feet in North Las Vegas and Arrowhead Electrical Products leasing 53,760 square feet in Henderson.
Eight buildings totaling 1.3 million square feet were delivered in the first quarter of 2018. This was marked by Van Trust’s 731,661-square-foot building located at the Northgate Distribution Center and three mid-bay buildings totaling 186,000 square feet at the Henderson Commerce Center. Although not at the same levels as 2017, construction activity will be relatively brisk in 2018. About 1.9 million square feet was under construction at the end of the first quarter of 2018, with another 6.1 million square feet planned. Several projects are scheduled to break ground this summer, including Panattoni’s 213,156-square-foot Centennial Commerce Center in North Las Vegas and Prologis’ 224,752-square-foot Warm Springs Business Center in the airport submarket.
Opportunity and demand are the buzzwords for Las Vegas’ industrial market in 2018. New vacant standing inventory will keep Southern Nevada regionally competitive and will boost the market’s desirability for companies with immediate needs. While year-over-year vacancy is down 40 basis points, new construction and several large new vacancies in the first quarter of 2018 have created opportunity for new and expanding tenants. CBRE Econometric Advisors are also forecasting positive rental rate growth over the next couple of years, predicting a 6.6 percent lease rate increase in 2018 and a 3.5 percent jump in 2019.
— By Greg Tassi, senior vice president, CBRE. This article first appeared in the June 2018 issue of Western Real Estate Business magazine.