— By Jerry Doty of Colliers —
While several other Western markets started to slow down in late 2022 or early 2023, the Southern Nevada industrial market seemed to be relatively unscathed going into 2024. However, the impact was finally felt early in the first quarter of 2024. It lasted through the remainder of the year.
Despite this noticeable decline in activity, most remained optimistic that it would be a quick slump. We were hoping 2025 would come out with guns blazing. These prognostications have so far proven to be incorrect. First-quarter 2025 felt very much like the past four quarters. This noticeable slowdown could not have come at a worse time. We are in the midst of a record wave of new completions that will continue to deliver through the third quarter.
The Las Vegas industrial market delivered a little less than 16 million square feet of new inventory in 2024, bringing the total market up to 180 million square feet. The Valley is composed of eight different industrial submarkets, with the North being both the largest in total size (75 million square feet) and the largest amount of product under construction (almost 3.6 million square feet). At the end of 2024, we had more than 8.7 million square feet still under construction and set to deliver over the next three quarters.
The pipeline for planned projects is also up to an all-time high at 36.2 million square feet. Even under the best-case scenario of a 12- to 14-month timeline from groundbreaking to delivery, the market is on track to face a gap in new supply by late 2025. Based on historical absorption of 4 million to 5 million square feet a year, we will have roughly two to three years of available inventory to absorb.
This slowdown caused net absorption for fourth-quarter 2024 to turn anemic, with only 467,260 square feet. This, paired with the significant amount of new product delivered, allowed vacancy to rise to 8.6 percent. For comparison, vacancy sat at 4.5 percent at the beginning of 2024. We expect this trend to continue upwards as we see more deliveries, combined with slow absorption. The only thing that may make a meaningful impact on the current supply would be a few larger deals coming through. We hope to see these tenants return by the end of the year.
Now for some good news. Many tenants remain active, especially in the Southwest and Henderson submarkets where a handful of deals ranging from 20,000 to 60,000 square feet have been signed over the past several quarters. The majority of these deals involve local companies that service the local economy, which has remained strong, despite the national concerns. Industries that have been active include food service, exhibit companies and other industries related to the (Strip) entertainment sector.
Capital markets have also slowed with only a handful of transactions over the past 12 months. While not completely frozen, the deal volume has cooled from the previous three years. We do have a few transactions that provide a good estimate of where cap rates sit today. MDH’s January purchase of 500,000 square feet ($184 per square foot) in North Las Vegas closed in the low 5 percent cap rate range, with a handful of below-market rents in place. Most recently, BKM closed on 263,000 square feet in the Southwest in two separate projects with cap rates at 5.05 and 5.26. Instead of the three to four projects that used to hit the market at once, deal flow is expected to remain slow but steady, with only one or two launches each quarter.
The theme through the end of 2024 seemed to be that many groups were waiting on some clarity surrounding the economy and the pending presidential election before making any real estate decisions. Unfortunately, the uncertainty remains. Worries currently swirl around the potential impacts of tariffs and volatility within the national economy. This will likely compel these same groups to continue kicking the can down the road, abstaining from any impactful real estate decisions for at least the next few quarters, if not longer.
Despite some doom and gloom, there are continued bright spots in Southern Nevada’s industrial market. Local tenants, primarily in the southern submarkets, are moving forward with relocations or expansions as the local economy remains active. These deals are on the smaller side (below 100,000 square feet) and won’t make an impact on the greater market vacancy, but they do show a glimmer of hope that there’s light at the end of this tunnel.
For now, I shake my Magic 8 Ball and continue to get the same response: “ask again later.” Despite this, I remain optimistic that Las Vegas will weather this storm as the core fundamentals, including its proximity to Southern California, high barrier to entry and strong local economy, will help Southern Nevada get out of this slump sooner rather than later.
— By Jerry Doty, Executive Vice President, Colliers. This article was originally published in the May 2025 issue of Western Real Estate Business.