The Las Vegas industrial market vacancy rate fell to 16.2 percent, which is its lowest level in more than two years. Compared to the prior quarter (Q1 2013), the vacancy rate fell 30 basis points (0.3 percentage points), while it is down 130 basis points (1.3 percentage points) from the prior year period (Q2 2012).
Three projects totaling 422,100 square feet completed construction during the quarter, bringing total inventory to 106.9 million. When combined with completions in the prior quarter (Q1 2013), year-to-date completions reached 582,100 square feet. For comparison purposes, the half-year total in 2013 exceeds all development activity that occurred in 2010, 2011 and 2012 combined.
Demand for industrial space remained elevated, with approximately 741,000 square feet of net move-ins during the quarter. It is important to note that the 362,100 square feet in user-specific completions contributed to a large portion of the net absorption for the quarter. Without these completions, there would have been approximately 378,900 square feet of net move-ins. Through the first six months of the year, net absorption totaled 1.6 million square feet, an impressive total given negative performances in 2009, 2010 and 2011.
During the first half of 2013, nearly 600,000 square feet of new space entered the market, which is the highest total since 2009. Construction activity is the highest it has been in nearly five years, and it is likely we are going to see more space come online throughout the remainder of the year. While recent investments are primarily attributable to user-specific needs, an estimated 17.3 million square feet of space remains vacant throughout the valley.
This quarter, the scales have tipped strongly positive with many good deals and more in the works. The general consensus throughout the market is as positive as has been seen in years.
Thirty eight industrial transactions were completed in Q2 2013 with a gross absorption of 1,234,861 square feet. This is significantly higher than prior quarters where the market struggled to reach one million square feet. Transaction volume is up 12 percent over the last 3 years. Average deal size at 35,128 square feet is also up 11 percent.
Net absorption for the quarter was 432,626 square feet, more than 3 times the average net over the last three years. This activity in all submarkets has resulted in a drop in the vacancy rate from 13.6 percent at the beginning of the quarter to the current market vacancy of 12.9 percent.
When excluding sublease space the vacancy rate drops to 11.3 percent. The decline in vacancy is having an effect on asking rents. There are very few landlords willing to “buy” a deal with cheap rent. Two factors will drive rents higher in the future. First is the declining vacancy (especially in class A space) and the second is the sale of 9.5 million square foot Pro- Logis/Lehman portfolio due to close in the third quarter.
All attention is focused on the 9.5 million square foot portfolio sale referenced above. Although it is a very large institutional sale, it will surely have an effect on sale expectations for other sellers and we are beginning to see other owners move forward with selling assets formerly assumed to be difficult to sell.
Go to the View Issues 2013 page and click on August 2013 to view this article with accompanying statistics.