Southern Nevada’s Office Market Adapts to the New Normal

by Jeff Shaw

— By Travis Marc, vice president, and Landes Magliarditi, first vice president, CBRE —

The post-pandemic world has reshaped office space needs, and Southern Nevada is no exception. Economic uncertainty and evolving return-to-work policies are driving a market transformation that will define 2024 activity. Fueled by flexible work schedules, the digital age has fundamentally transformed how office tenants work and remain efficient.  This shift in work styles is impacting the office market, and we are closely monitoring these trends to determine if pandemic-era changes will remain the future of office, or if new shifts arise to further define the future of office space. 

Nevada’s Enduring Strengths, Challenges

Nevada’s strong economy continues to attract businesses, with sports and entertainment options fueling the growth. Live-work-play office concepts attract high-quality tenants as they, in turn, look to recruit high-quality talent. This development philosophy in Southern Nevada aims to create vibrant communities with seamless transitions between work, life and leisure activities, resulting in record rental rates. 

At the same time, rising interest rates and construction costs are slowing the overall development of new office. As a result, tenants have limited options to secure quality office space in newly constructed buildings.  Well-located, second-generation suburban office space remains a consistent choice for many companies. This is especially true for those with a more cost-conscious approach, which places these buildings in high demand.  High construction costs also impact the cost of tenant improvements, making it challenging to structure lease transactions that satisfy both the landlord and tenant.  

First-Quarter Takeaways

The aforementioned high cost of construction led to no new office building starts in the first quarter of 2024. However, two Class A building completions added 146,728 square feet to the existing inventory in Summerlin, which helped maintain a balance despite lower demand. Vacancy rates climbed slightly to 11.8 percent compared to 10.5 percent this time last year, but there is a silver lining. Average asking lease rates for direct space saw an increase by 6.8 percent, to $2.64 per square foot, per month (full-service gross), while the sublease market continues its decline from its 2021 peak. Only 6 percent of the total available space (or 1 percent of total inventory) is actively being subleased, totaling roughly 338,000 square feet.  Some significant negative absorption also occurred this quarter, including the State of Nevada transitioning to owner-occupied space and a new back-office sublease becoming available in the West submarket.

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