Commercial Real Estate Experts Highlight Signs of Economic Recovery
LAS VEGAS (May 1, 2013) – With decreases in vacancy in the industrial, office, retail and medical sectors, Colliers International – Las Vegas’ first quarterly market report of 2013 points to continued growth for the upcoming year, despite indications of a general lack of available appropriate space in some sectors.
Compiled by John Stater, research director for Colliers International – Las Vegas, the report demonstrates continued positive performance, as evidenced by increases in industrial net absorption and in industrial completions. Industrial net absorption was 692,482, representing a year-over-year increase of more than one-million square feet, while 129,000 square feet of industrial space was also completed, compared to none one year ago. Despite these positives, though, lack of existing space and a weakened construction market represent challenges ahead for the industrial sector.
“Employment continues to be weaker than we would like, especially in the construction sector, but many measures of the local economy appear to be on the mend, and that gives us hope that 2013 will not only be a stronger year than 2012, but stronger or at least as strong as 2011,” said Stater.
Declines in vacancy in the office and retail sectors indicate growth for 2013. Office vacancy in Southern Nevada is now at 22.7 percent, representing a year-over-year decrease of 1.4 percentage points and the fourth consecutive quarter of declining vacancy. Retail vacancy is now at 9.7 percent, representing a year-over-year decrease of 1.7 percentage points and the seventh consecutive quarter of declining vacancy. While both of these sectors are positive indicators for the future, a lack of available large blocks of office space might be forcing landlords to turn away potential tenants, and the fact that no distressed properties within the retail sector have been sold so far in 2013 suggests that the most appealing distressed retail properties have already been sold.
“While the first quarter of 2013 wasn’t as good to Southern Nevada’s office market as the fourth quarter of 2012, it still showed slow and steady improvement,” Stater said. “It’s heartening to say, after five years of a bad economy, that the first quarter of 2013’s 119,649 square feet of [retail] net absorption was not the best net absorption recorded in the past few quarters; a sign that the market is truly in recovery,”
Despite indicators of growth in these sectors, the hotel sector represents potential challenges for 2013. Hotel occupancy in January 2013 was 81.7 percent, representing a decrease of 5.7 percentage points, and visitor volume in January 2013 was 3.1 million people, a decrease from January 2012. Year-to-date in 2013, sales volume in the hotel sector has only accounted for $17.3 million, compared to a sales volume of $77.8 million in the first three quarters of 2012.
These challenges aside, the average daily rate (ADR) for Clark County in January 2013 was $114.22, 5.7 percentage points higher than in 2012. Convention attendance has also increased by approximately 40,000 attendees compared to January 2012, and despite the loss of 1,900 jobs in the leisure and hospitality sectors, the upcoming re-openings of the SLS (the former Sahara) and The Quad (the former Imperial Palace) are expected to reverse this employment decline.
“Las Vegas is potentially on the verge of a new era, much as the construction of the Mirage in 1989 represented the beginning of the last era,” said Stater. “Not only do we have the re-opening and re-branding of several properties in Downtown Las Vegas and on the Las Vegas Strip, but we have the announcement of the future completion of the Echelon project, the 3,500-room World Resorts Las Vegas by the Genting Group out of Kuala Lumpur.”
Other key findings of the report, broken down by market segment, include:
Industrial vacancy now stands at 14.2 percent. This is 0.6 points lower than one quarter ago and 0.7 points lower than one year ago.
The industrial average asking rent now stands at $0.49 per square foot on a triple-net basis. This is a $0.01 decrease from one quarter ago, and the same as one year ago.
Industrial net absorption was 692,482 square feet this quarter. This is a 522,093-square-foot increase from one quarter ago, and a 1,000,759-square-foot increase from one year ago.
There were 129,000 square feet of industrial completions this quarter. There were no industrial completions one quarter ago or one year ago.
The first quarter’s positive net absorption was fairly wide spread.
Southern Nevada remains attractive to industrial operators even if it currently lacks existing space suitable to their operations.
The continued weakness of the construction sector, which has created a mismatch between existing supply and required demand, will challenge the market moving forward.
“After a very disappointing 2012, the first quarter of 2013 showed that Southern Nevada’s industrial market still has some life left in it,” Stater said.
Office vacancy now stands at 22.7 percent. This is a 0.8-point decrease from one quarter ago and a 1.4-point decrease from one year ago.
The office average asking rent now stands at $1.86 per square foot on a full service gross basis. This is a $0.04 decrease from one quarter ago and a $0.05 decrease from one year ago.
Office net absorption was 38,296 square feet this quarter. This is a 71,421-square-foot decrease from one quarter ago and an 83,299-square-foot increase from one year ago.
There were 42,123 square feet of office space completed this quarter. This is a 25,569-square-foot decrease from one quarter ago and a 33,123-square-foot increase from one year ago.
As more resorts look for off-property office space, the east Las Vegas submarket should see the benefits.
The lack of large blocks of office space (50,000 square feet or more) in the market may be forcing landlords to turn potential tenants away, and is keeping net absorption numbers lower than they otherwise would be.
As credit loosens and new start-ups spring up, second-generation Class C space is becoming a valuable commodity in Southern Nevada, as these start-ups rarely want to wait for tenant improvements before getting started.
“If you tilt your head a bit and squint, you can tell that the Southern Nevada office market is in a state of recovery. Four straight quarters of declining vacancy would appear to be proof of that,” Stater said.
Retail vacancy now stands at 9.7 percent. This is a 0.5-point decrease from one quarter ago and a 1.7-point decrease from one year ago.
The retail average asking rent now stands at $1.35 per square foot on a triple-net basis. This is a $0.03 decrease from one quarter ago and a $0.03 decrease from one year ago.
Retail net absorption was 119,649 square feet this quarter. This is a 261,788-square-foot decrease from one quarter ago and a 43,948-square-foot decrease from one year ago.
There were no retail completions this quarter. This is as it was one quarter ago and a 195,000-square-foot decrease from one year ago.
Retail vacancy in Southern Nevada has been on the decline for seven quarters now, a slow recovery from the depths of the Great Recession.
High population density and steady, though lower than average, income, may work to the advantage of older submarkets in the Valley including University East and West Central.
None of the sales so far in 2013 have been of distressed properties, suggesting that the cream of the distressed crop has already been sold.
“The next 12 months will probably give us some solid signs of where Southern Nevada’s retail market is headed in the long term,” said Stater.
Hotel occupancy in Clark County in January 2013 was 81.7 percent, a 5.7-point decrease from 2012’s average, and a 0.5-point decrease from January 2012.
Clark County’s ADR was $108.02 in 2012, while in January 2013 the ADR was $114.22.
Visitor volume in January 2013 was 3.1 million people, lower than in January 2012 but slightly higher than in January 2011.
Convention attendance has been strong so far in 2013, with 572,000 conventioneers visiting Southern Nevada. This is approximately 40,000 more people than in January 2012.
Gaming revenue for Clark County stood at $803 million in January 2013, down significantly from January 2012. Gaming revenue on the Las Vegas Strip was $507 million in January 2013, also down significantly from January 2012.
Between December 2012 and January 2013, the leisure and hospitality sector lost 1,900 jobs. Despite this, the pending re-openings of the SLS and The Quad on the Strip should counter this negative movement.
Year-to-date in 2013, sales volume has been weak, with only 222 units selling at $78,041 per unit, for a total sales volume of $17.3 million, compared to a sales volume of $77.8 million in the first three quarters of 2012.
“When one takes into account smaller motel properties, below the normal purview of this report, Downtown Las Vegas has seen an impressive rash of sales over the past two years,” said Stater.
Medical office vacancy now stands at 20.7 percent. This is a 0.4-point decrease from one quarter ago and a 0.5-point increase from one year ago.
The office average asking rent now stands at $2.11 per square foot on a full service gross basis. This is as it was one quarter ago and is a $0.18 decrease from one year ago.
Medical office net absorption was 20,530 square feet this quarter. This is a 79,596-square-foot increase from one quarter ago and a 32,200-square-foot increase from one year ago.
There were no new medical office completions this quarter. This is even with one quarter ago and one year ago.
The first quarter of 2013 reversed the largely negative fourth quarter of 2012, with positive net absorption in the medical office market and, therefore, decreased vacancy.
Over the past three quarters, job growth has wavered, and Southern Nevada now has 18,700 health care workers outside of ambulatory services and hospitals.
Sales of distressed medical offices have been weak over the past year, and in the first quarter of 2013 no distressed medical office was sold. That said, very little distressed medical office space is actively marketed for sale.
“While medical practitioners now know, to some extent, what lies ahead of them, they are still figuring out how to adapt to it,” said Stater. “2013 will probably be a year of experiment and adaptation more than a year of outright progress for Southern Nevada’s medical office market.”
According to statistics provided by REIS, multi-family vacancy in Southern Nevada decreased in the fourth quarter of 2012, the most recent quarter of available data, continuing an eleven-quarter trend in declining vacancy.
Most submarkets showed positive net absorption, the exception being the northeast submarket, which suffered 27 units of negative net absorption.
“Population growth, a key driver of Southern Nevada’s economy and obviously of demand for multi-family, continues to recover from the lows of 2010,” said Stater. “Multi-family sales continued to rise in 2012, with 10,057 units selling at an average price per unit of $64,679, compared to 2011 when 7,554 units sold at an average price of $50,324 per unit.”
About Colliers International
Colliers International is the third-largest commercial real estate services company in the world, with over 12,300 professionals operating out of more than 520 offices in 62 countries. A subsidiary of FirstService Corporation (NASDAQ: FSRV; TSX: FSV and FSV.PR.U), it focuses on accelerating success for its clients by seamlessly providing a full range of services to real estate users, owners and investors worldwide Including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and research. Commercial Property Executive and Multi-Housing News magazines ranked Colliers International the top U.S. real estate company. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world.