LAS VEGAS – Increases in net absorption and new completions in the industrial and office real estate sectors were key points in Colliers International – Las Vegas’ fourth quarterly market report of 2013. The report also indicates past and future interest in land sales, which increased dramatically in 2013 compared to 2012. Compiled by John Stater, research director for Colliers International – Las Vegas, the report predicts that, as interest in land increases, Southern Nevada’s economy will be expected to grow as well, despite challenges in some sectors.
The report outlines a year-over-year increase in net absorption of more than 130,000 square feet in the industrial sector. The industrial sector saw vacancy decrease by more than 2 percentage points, and saw more than 800,000 square feet of new completions in 2013.
“Without a doubt, 2013 was the best year Southern Nevada’s industrial real estate market has had in five years,” Stater said. “Hopefully, it was merely a prelude to an equally productive 2014.”
The office sector, which had previously seen a trend of office tenants downsizing and going out of business, saw a year-over-year increase of more than 500,000 square feet of new completions and more than 230,000 square feet in net absorption. Despite the boost three major build-to-suit projects and two major leases provided, the office sector still lost 1,200 jobs between October 2012 and October 2013. As a result, the most likely trajectory for the office sector in 2014 is similar to 2013, with slightly weaker net absorption in the first half of 2014 and stronger net absorption in the second half of 2014.
“2013 was actually a successful year for Southern Nevada’s office market, although it did not always feel like it while it was happening,” Stater said. “Of the office deals we have tracked in 2013, the most active industries have been financial services, including real estate and insurance services, personal and business services, and engineering and management.”
Comparing the first 10 months of 2012 to the first 10 months of 2013, the hotel sector saw visitor volume increase by 100,000 people. Gaming revenue remained the same in those time periods, and RevPAR (revenue per available room) averaged $100.84 in 2013, an increase of more than $6 compared to 2012. With the closings of the Gold Spike and Las Vegas Club in the downtown submarket, a total of 572 rooms were removed from the inventory in the first quarter of 2013. However, 629 rooms were added to Southern Nevada’s hotel inventory with the opening (or re-opening) of the Las Vegas Grand in the downtown submarket, formerly the Lady Luck. At the close of 2013, Southern Nevada was on the verge of significantly adding to its hotel room inventory. If room occupancy remains high in the face of this new construction, it is likely that a signal will be sent that Southern Nevada is well-prepared to welcome Resorts World Las Vegas in 2016, and future development later this decade.
“Southern Nevada’s hospitality sector is no stranger to reinvention,” Stater said. “In the 2010’s, the focus is shifting in two important ways – to retail located outside the main resort structures, and to shifting focus from being local operators to international operators, spreading brands to Asia and the Eastern United States.”
The retail sector in 2013 was not as successful as other sectors of the market. Net absorption decreased year over year by more than 650,000 square feet, and only 8,000 square feet of new retail was completed in 2013, compared to 195,000 square feet completed in 2012. Despite these challenges, the retail sector saw an increase of 6,000 jobs between October 2012 and October 2013, and Clark County’s taxable retail sales in the third quarter of 2013 increased by $300 million compared to the same quarter one year prior. The return of speculative construction in 2014 will set the tone of the “new normal” moving forward, and Southern Nevada’s retail market is expected to continue its slow and steady recovery in 2014, which it had previously seen in nine consecutive quarters prior to the most recent.
The medical office sector, after surviving a mostly negative 2013, finally posted strong net absorption numbers in the fourth quarter of last year. Medical office vacancy decreased in the fourth quarter by more than a point compared to the third quarter. Investment sales in the medical office sector also rebounded from 2012, with the sales of eight properties in 2013 totaling 226,000 square feet and almost $33 million in value. Despite these gains, the sector reported a loss of 1,100 jobs between October 2012 and October 2013, and it is likely the medical office market in 2014 will continue to limp along while circumstances outside the control of landlords and tenants play themselves out.
“If health care employment turns around in the next three months, there is a chance that Southern Nevada’s medical office market will enjoy a more prosperous year in 2014 than it suffered through in 2013,” Stater said.
Land sales in 2013 indicated predictions for 2014, both for Southern Nevada as a whole and for individual market sectors. The number of acres of land sold in 2013 surpassed 2007 levels, the height of the boom. This affected the industrial market, with almost all of 2013’s construction focused on build-to-suit projects. Three large speculative retail development projects also began construction in the fourth quarter of 2013, with expected completion in 2014. Throughout 2013, more than 1,700 acres of residential land was sold, which is an increase of 123 percent compared to 2012. This data suggests the economy will continue to grow throughout 2014, and land sales are expected to grow along with it.
“The factors that drive current and future development are the factors that drive the demand for land, and in 2013 those development factors were on the rise,” Stater said. “Perhaps more than any other segment of real estate, land sales are about the future. When people are hopeful and looking forward to better days ahead, land becomes an attractive investment.”
Other key findings of the report, broken down by market segment, include:
Industrial vacancy now stands at 11.5 percent, down from 14.1 percent one year ago.
The industrial average asking rent now stands at 52 cents per square foot. This is 1 cent higher than one quarter ago and 3 cents higher than one year ago.
Industrial net absorption for 2013 was 3,628,929 square feet, up from 131,764 square feet one year ago.
There was 813,948 square feet of new completions in 2013. There were no industrial completions one year ago.
Southern Nevada’s industrial job market remained weak in October 2013, with every sector other than wholesale showing a loss of employment.
Southern Nevada’s industrial inventory expanded by 813,948 square feet in 2013, with 65,628 square feet added in the fourth quarter. Most of this product has been in the form of build-to-suit space.
For the fourth consecutive quarter, Southern Nevada experienced positive net absorption in industrial product. Net absorption has now been positive in nine of the last 11 quarters, and was especially strong in 2013.
Industrial vacancy has been on the decline since the first quarter of 2012, dropping from a high of 14.4 percent to the current low of 11.5 percent. This is the lowest industrial vacancy recorded since the first quarter of 2009, when vacancy was 10.6 percent.
The weighted-average asking lease rate for industrial space increased this quarter to 52 cents per square foot on a triple-net basis, reversing the dip into the upper 40s experienced in 2012.
While there were fewer industrial investment sales in 2013 than in 2012, more space was sold and sales volume increased by 22.6 percent to $188.1 million.
“With significant improvements in both gross and net absorption, the industrial market is now within 12 months of returning to what we would consider a normal level of vacancy,” Stater said.
Office vacancy stands at 21.2 percent. This is a 1.1-point decrease from one quarter ago and a 0.9-point decrease from one year ago.
The average asking rent now stands at $1.87 per square foot. This is the same as it was one quarter ago and one year ago.
Annual net absorption for 2013 was 841,636 square feet. This is a 231,379-square-foot increase from one year ago.
There was 627,354 square feet of new completions in 2013, an increase of 546,162 square feet from one year ago.
Southern Nevada’s office market was on a downward slide as 2013 began, but build-to-suit activity and two big leases boosted the second half of the year and provided hope for a better 2014.
According to the Nevada Department of Employment, Training & Rehabilitation, between October 2012 and October 2013, a net of 1,200 office-sector jobs were lost in Southern Nevada.
Three major build-to-suit office projects were completed in 2013, helping to raise net absorption into positive territory. The largest of the developments were Zappos.com’s renovation of Las Vegas’ old city hall into its new corporate headquarters and the completion of the United Brotherhood of Carpenter’s expansion of their offices in the airport submarket.
Office vacancy has cut a crooked course over the past two years, bouncing between 21 and 24 percent, but generally following a downward path that suffered a notable reverse in the first half of 2013 before returning to the recovery path in the second half of 2013.
Southern Nevada’s office market had 841,636 square feet of net absorption in 2013, the highest annual net absorption posted by the office market since 2007, the twilight of the boom, when 2.4 million square feet was absorbed in Southern Nevada.
The amount of distressed office space decreased to 4.3 million square feet in 2013. This is compared to 4.6 million square feet that was distressed at the end of 2012.
While the number of investment sales and the total square footage of investment sales in 2013 dropped from 2012, sales volume almost doubled, reaching $504.8 million.
Retail vacancy now stands at 9.3 percent. This is a 0.3-point increase from one quarter ago and a 0.3-point decrease from one year ago.
The average retail asking rent now stands at $1.36 per square foot. This is the same as it was one quarter ago and one year ago.
Annual retail net absorption for 2013 was 150,870 square feet. This was a significant decrease from 837,697 square feet the year before.
There was 8,000 square feet of new retail completions in 2013. This was a significant decrease from 195,000 square feet the year before.
After nine quarters of positive net absorption, Southern Nevada’s retail market fell into negative net absorption territory in the fourth quarter of 2013.
According to the Nevada Department of Employment, Training & Rehabilitation, retail employment in Las Vegas increased by 6,000 jobs between October 2012 and October 2013, from 98,800 retail employees to 104,800 retail employees.
Clark County’s taxable retail sales in the third quarter of 2013 totaled $5.4 billion. This is $300 million higher than the $5.1 billion of taxable retail sales recorded in the third quarter of 2012.
Three traditional-anchored retail centers, one being a third phase of development in an existing center, began construction in the latter half of 2013, totaling 343,000 square feet of speculative retail space. All should be completed in 2014.
Retail vacancy in Southern Nevada had been on the decline for nine consecutive quarters before increasing by 0.3 points this quarter to 9.3 percent.
The average asking rental rate for retail space in Southern Nevada stood at $1.36 per square foot on a triple-net basis. This was the same as in the third quarter of 2013 and the fourth quarter of 2012.
Investment sales volume of shopping centers in 2013 exceeded sales volume in 2011 and 2012.
“Despite the fourth quarter’s negative net absorption, 2013 was a generally good year for retail in Southern Nevada,” said Stater.
At the close of 2013, Southern Nevada was on the verge of significantly adding to its hotel room inventory.
Visitor volume in the first 10 months of 2013 was 33.7 million people, up slightly from the 33.6 million visitors recorded in the first 10 months of 2012.
Gaming revenue for Clark County stood at $7.9 billion in the first 10 months of 2013, virtually equal to the same period in 2012, when gaming revenue stood at $7.9 billion.
RevPAR averaged $100.84 in 2013, an increase over 2012 when RevPAR stood at $94.36.
In October 2013, there were 267,200 jobs in the leisure and hospitality sector, a loss of 2,100 jobs since September 2013, but an increase of 3,300 jobs since October 2012.
With the closings of the Gold Spike and Las Vegas Club in the downtown submarket, a total of 572 rooms were removed from the inventory in the first quarter of 2013. No further properties in the Valley have been closed, but 629 rooms were added to Southern Nevada’s hotel inventory with the opening (or re-opening) of the Las Vegas Grand in the downtown submarket, formerly the Lady Luck.
Hospitality sales were light in 2013, with 1,129 units trading at an average of $49,009 per room.
Most of the sales were of limited service properties, with only one casino hotel, the Gold Spike in downtown, selling to Tony Hsieh’s development group for redevelopment.
Medical office vacancy now stands at 19.6 percent. This is a 3-point decrease from one quarter ago and a 1.9-point increase from one year ago.
The average medical office asking rent now stands at $2.09 per square foot. This is a 2-cent decrease from one quarter ago and one year ago.
Medical office net absorption was negative 117,966 square feet. This is down from one quarter ago and one year ago.
There were no new medical office completions this quarter. This is even with one quarter ago and one year ago.
After being battered and bruised through most of 2013, Southern Nevada’s medical office market finally posted strong net absorption numbers in the fourth quarter.
According to the Nevada Department of Employment, Training & Rehabilitation, between October 2012 and October 2013, a net of 1,100 jobs in the health care and social assistance sector were lost in Southern Nevada.
The last quarter to see new speculative medical office development was the fourth quarter of 2011, when 57,600 square feet was completed.
Vacancy in medical office space decreased in the fourth quarter of 2013, decreasing to 19.7 percent from 20.9 percent in the third quarter of 2013.
Much of this rise in vacancy occurred while health care jobs were shed in the Valley. This loss of jobs was most likely linked to consolidation within the health care industry. This consolidation in health care is coinciding with significant changes, or disruptions, in how health care is delivered to customers.
Medical office investment sales have rebounded since 2012. Sales volume in 2013 was $32.9 million, with eight sales totaling 226,000 square feet.
“The trend for medical office space demand is not terribly positive, and shows, as we mentioned above, the impact of consolidation and downsizing,” Stater said.
According to statistics provided by REIS, multi-family vacancy in Southern Nevada decreased in the third quarter of 2013 (the most recent quarter of available data), continuing a three-year long trend in declining vacancy.
All submarkets showed positive net absorption in the third quarter of 2013, with the highest net absorption found in North Las Vegas (147 units) and University (145 units).
Asking rents stood at $812 per unit in the third quarter of 2013. This represented 0.6 percent quarterly growth and 2.3 percent annual growth.
Over the past 12 months, Southern Nevada added 17,400 new jobs, with most new jobs being in the trade, transportation and utilities, government, leisure and hospitality, and education and health services sectors.
Multi-family sales decreased in the third quarter of 2013 compared to the second quarter of 2013, with 3,591 units selling at an average price per unit of $76,000.
Analysts at Colliers believe several factors will ensure continued strong demand for multifamily housing units in the Valley, and, should inventory growth remain constrained, show continued strong interest in multifamily investments.
“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,” Stater said.
While total sales volume for land in Southern Nevada remains well below the levels seen in 2007, the number of acres sold reached 2007 levels in 2012 and surpassed them handily in 2013.
Industrial occupancy increased by 2.6 percentage points in 2013, with almost all of that construction in the form of build-to-suit projects. This trend is expected to continue into 2014, with speculative industrial construction a possibility in 2015, assuming rental rates increase enough to justify the construction of new properties.
The retail market has seen positive growth over the past three years, and three large speculative retail developments started construction in the fourth quarter of 2013, to be completed in 2014. The office market, on the other hand, followed strong performance in 2012 with weaker performance in 2013. To be sure, the office market is recovering, but not quickly.
While no genuinely new resort projects have been announced, continued growth in hotel occupancy, especially in the face of the new rooms being added to the market, could stimulate demand for land in the latter half the decade.
While residential construction is not approaching the heights it reached in the middle of the last decade, it is showing steady improvement.
During 2013, 1,782 acres of residential land was sold, a 123-percent increase over 2012, when 799 acres were sold.
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