The Las Vegas office sector ended 2013 on a somewhat positive note as it reported positive net absorption for the third consecutive quarter. While the vacancy rate remains elevated, the latest period represents a decline of 0.2 percentage points compared to the prior quarter. Compared to a year ago, the rate is down 0.3 percentage points.
During the quarter, the second phase of Seven Hills Plaza completed construction. The building added 45,700 square feet to the market. When added to the 35,000-square-foot Legal Aid Center of Southern Nevada, completions for 2013 totaled a relatively modest 80,700 square feet.
During the fourth quarter, the office sector reported approximately 129,100 square feet of positive net absorption. For the year, net absorption in the office sector totaled positive 200,300 square feet, which outpaced the 65,500 square feet of net move-ins reported in all of 2012.
Construction activity increased to 443,000 square feet by the end of 2013, sourced to four projects throughout the valley. Despite the recent increase in office construction, another 2.2 million square feet remains planned or stalled with no plans for completion any time soon.
With more than one quarter of its inventory sitting vacant, the office sector continues to report a vacancy rate substantially higher than the retail and industrial markets. However, in the fourth quarter of 2013, the office sector reported its first year-over-year decline in vacancy rate since the first quarter of 2006.
As the year has progressed, the Northern Nevada office market has continued to improve at a rate not seen since the start of the elongated recession. The quarter was incredibly positive for the Northern Nevada office market as over 105,000 square feet of space was absorbed by local economic growth. Most notably, the two transactions that led the charge were Custom Ink’s expansion into over 50,000 square feet at Reno Tech Center and LP Insurance’s expansion into over 22,000 square feet at Park Center Tower.
Absorption accelerated beyond expectations more than quadrupling quarter over quarter measures. The South Meadows submarket led the charge with 46,000 net square feet while Downtown absorbed nearly 30,000 net square feet. The overall effect of the ebb and flow of absorption quarter over quarter brought our overall vacancy down to 14 percent, not to include sublease space. The Meadowood submarket continues to be the stronghold at 11.4 percent vacancy while netting over 12,000 square feet absorbed.
Quality spaces in the Class A buildings are at a premium and very scarce. Though no plans exist at this time to develop new office product in Downtown Reno, several assets have been purchased and are in the process of being rehabilitated; most notably 1 East Liberty Street (formerly the US Bank building) and the former Downtown Post Office.