The Las Vegas industrial market continued to witness substantial demand in the first quarter of 2014. The sector’s vacancy rate fell to 12.2 percent during the period, which is down 0.8 percentage points from the prior quarter. Compared to a year ago, vacancies are down an even more dramatic 2.8 percentage points. The industrial market vacancy rate has witnessed annual declines for eight consecutive quarters and is now at its lowest level in five years.
During the first quarter, three industrial buildings completed construction totaling 431,600 square feet, bringing total inventory to 107.8 million square feet. The industrial sector also reported 1.3 million square feet of net absorption in the first quarter of 2014. Demand has picked up considerably in the last year, with 4.0 million square feet of net move-ins witnessed in 2013 and 4.1 million square feet of positive net absorption reported in the past 12 months.
Construction activity is continuing to pick up, reaching 1.3 million square feet by the end of the first quarter. Development activity is sourced to four build-to-suit projects located throughout the valley. In the northeast, Nicholas & Company is making progress on its 182,900 square foot distribution center, while TJ Maxx is moving forward on its 400,000 square foot expansion in North Las Vegas. Meanwhile, Konami Gaming is working on its 193,400 square foot expansion near McCarran International Airport, and Switch broke ground on its 525,000 square foot MegaNAP 9 in the southwest.
The first quarter of 2014 has been full of surprises as companies made end of year decisions which are now being played out. In the first quarter, 34 new spaces totaling 927,007 square feet were announced coming available. Northern Nevada saw companies like Ceva Logisitics (153,000 square feet) and others, who were once marketing their spaces, announce their intent to re-occupy.
Everything considered, quarter one was neutral which is acceptable looking at historical first quarter numbers and knowing the pipeline of large deals committed to the market. This year is beginning to look similar to 2013 with the exception that a large part of absorption will come from build-to-suit construction as opposed to occupancy within existing buildings.
Rental rates are increasing (almost a full 1½ cents) and more of the same is expected for the remainder of the year. Sales activity has been very active over the past nine months and continues to be active for all product sizes and types. At this point, most of the distressed/discounted properties have been sold.
The big change expected see this year is the amount of construction. There are currently 2.9 million square feet committed or under construction in five known projects with more likely as the year progresses. There will be some new vacancy as existing tenants move to larger build-to-suit facilities. If latter year activity matches what happened in 2013, there should be little problem absorbing these vacancies.