David Delich, Berkadia Real Estate Advisors
Boosted by healthy employment growth, demand for apartments in Las Vegas metro area surged in 2014. Local employment grew 2.7 percent, outpacing the 2.1 percent national gain last year as metro-wide apartment vacancy plunged 110 basis points to 6.8 percent. Employers added 22,900 jobs to payrolls in 2014, as nine of the 11 job sectors hired, indicating broad-based economic resiliency and supporting demand across all classes of apartments.
Apartment operators particularly benefited from outsized expansion in the trade, transportation and utilities, and the leisure and hospitality sectors, where a combined 7,400 jobs were created. Mass hiring in the Downtown Summerlin mixed-use development, The LINQ and Zappos.com significantly contributed to growth in these segments. The greatest rate of increase, a 10.5 percent gain, occurred in the construction industry, as 4,200 workers were hired.
The effects of hiring were felt in the apartment rental market as 3,790 units were absorbed in 2014, up from 1,990 units absorbed during the preceding year. Absorption outpaced deliveries, underpinning the sharp drop in vacancy. Operators moved to take advantage of demand by advancing monthly asking rents 3.1 percent marketwide to $837 per month, the greatest annual increase since 2006. At the same time, operators scaled back concessions on a metro-wide level, as rising demand allowed owners to reduce renter incentives. Average concessions fell to about eight days of free rent by the end of 2014, down from two weeks in the fourth quarter of the prior year.
With operators raising both occupancy and rents at a healthy clip, emboldened developers continue to feed the planning pipeline. Permits were requested for nearly 3,070 multifamily units last year, more than double submissions in 2013.
While current and planned construction efforts are spread throughout the metropolitan area, builders are particularly bullish on the Henderson/southeast submarket due to healthy asking-rent trends. Henderson/southeast asking rents grew a metro-leading 4 percent in 2014 to $968 per month. Asking rents at recently built projects are gravitating toward $1,300 per month for the smallest units in the community, more than one-third greater than average asking rent for the entire submarket. Meanwhile, rents for the largest, most desirable units can range between $2,500 and $4,500 per month.
Developers added nearly 800 market-rate apartments in the submarket in 2014, accounting for the majority of completions in the metropolitan area. Not surprisingly, inventory growth is expected to be greatest in the Henderson/southeast submarket again this year, with nearly 1,050 rental units on pace to come online.
By David Delich, Senior Director of Research, Berkadia Real Estate Advisors