The Fear Factor has Disappeared in Las Vegas’ Industrial Market

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Investor money has returned to the industrial market in Las Vegas.

Compressing cap rates continue to result in rising values on properties even in the hardest-hit areas of Las Vegas. Couple that with limited available industrial product, and the result is the need for today’s buyers to act quickly and competitively if they want to acquire quality properties that will deliver attractive yields.

MCA Realty initially entered the Las Vegas market in mid-2011 to acquire incubator/mid-bay, multi-tenant industrial properties significantly below replacement cost. Since that time, the firm has seen a substantial shift in the number of buyers competing for this product type in this market.

This increasing competition will continue to drive values up, and investors will need to rely even more heavily on their local brokerage relationships to make deals work.

On the leasing side, vacancy rates continue their downward trend. Occupancy is up on all industrial product types, and confidence from business owners continues to rise. The result is increased stabilization throughout the market.

A key component driving the tenant demand for multi-tenant industrial is the resurgence of hotel construction and renovation in the works on the Las Vegas Strip. This activity has created a surge of small support businesses, from furniture, fixtures and equipment (FF&E) companies to lighting providers, many of which have emerged to provide essential services during construction.

The demand for small-service businesses will continue to grow in Las Vegas. As construction returns, the resultant completions will perpetually create new service demand.

While multi-tenant industrial is in high demand, it’s important to note that this product type is not yet poised for new construction.

Several big-box projects, alternatively, are slated for the second half of this year. In the first quarter of 2014, roughly 1.3 million square feet of big-box industrial space was actively underway. This includes projects like the 193,400-square-foot expansion by Konami Gaming, as well as Switch’s 525,000-square-foot MegaNAP 9, and others.

As confidence continues to grow among both investors and tenants, rents are already beginning to rise modestly. This increase should continue over the next 12 to 24 months, which will contribute to improved market conditions going forward.

By Tyler Mattox, a principal at MCA Realty. This story originally appeared in the August 2014 issue of Western Real Estate Businessmagazine.

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