The Las Vegas office market features a number of unique characteristics. For example, the Class A office market is not concentrated into a central business district. Office users in the downtown area consist almost exclusively of tenants that require proximity to the courts or government offices. Consequently, the tenant mix is limited to uses associated with litigation and government services. Other Class A tenants are spread around the valley at projects such as Hughes Center, a location favored by financial services, gaming interests and transactional law firms.
The pool of Class A tenants is relatively shallow, measuring 6.2 million square feet or 13 percent of the overall office market. Reasons include a narrow economic focus — primarily gaming and tourism — and a lack of regional or national corporate headquarters. Consequently, speculative development and operation of Class A office space favors local players (i.e., developers, lenders and brokers).
The speculative office pipeline for Las Vegas is dry except for one notable project. Tivoli Village, a 750,000-square-foot retail/office project, is anticipated to deliver its first phase in October. Despite office vacancy in excess of 20 percent, the developers, a partnership between IDB Group of Israel and local developer EHB Companies, have elected to move forward with the project after a “strategic pause.”
Located just east of Summerlin near the southeast intersection of Rampart Boulevard and Summerlin Parkway, the upscale project enjoys stellar demographics within a 5-mile radius. A recently signed 30,000-square-foot lease with a law firm kicked off the first-phase office component, which contains approximately 150,000 square feet. Subterranean parking and proximity to executive housing are anticipated to set Tivoli Village apart from the competing Town Square project.
The labor market is a strong predictor of future office market trends, specifically office employment growth. Negative absorption during five of the past six quarters is indicative of the shrinking labor pool. Though still negative, the rate of decline is leveling out. Once the trend turns positive, we can expect positive office absorption within 6 to 12 months. Why the time lag? Many businesses currently have excess office space that will need to be absorbed internally before new demand appears in absorption statistics.
— Dean Kaufman and Bret Davis are senior vice presidents at Jones Lang LaSalle Americas in Las Vegas.