Demand for Las Vegas office space stalled in the first quarter of 2014 as the market reported a vacancy rate of 25.8 percent. Despite the slight uptick in office vacancies during the first quarter, they have now reported year-over-year declines for two consecutive quarters.
Office inventory increased to 52.8 million during the first quarter of the year, due to the completion of the 46,000-square-foot Robert T. Eglet Advocacy Center. Completions have been somewhat limited with only three new projects completing construction since the first quarter of last year, totaling 126,700 square feet.
After reporting three consecutive quarters of positive net absorption in 2013 and an annual total of 189,700 square feet of net move-ins, office demand weakened in the beginning of 2014. However, the latest quarter is an improvement over the 241,300 square feet of net move-outs witnessed in the first quarter of 2013.
Despite recent softness, construction activity picked up with 747,000 square feet actively under development by the end of the first quarter of 2014. The second phase office space in Tivoli Village at Queensridge, Federal Justice Tower and One Summerlin at Downtown Summerlin continues to make progress. In addition, the 200,000-square-feet of office space at the former Manhattan West project (now The Gramercy) and the 150,000-square-feet of office space at Centennial Hills Center are once again moving forward.
Reno has seen a bit of a slowdown in true “in-bound” deals. The market and community awaits that relocation that brings a significant amount of high paying jobs.
Ending 2013 with a relatively healthy vacancy of 15.47 percent, the office market recessed starting in 2014 and stood at 17 percent at the end of March. Much of this was due to the former AT&T call center coming to market, Kinross Gold downsizing, and the acknowledgement of sub-lease space reverting back to landlord direct.
The market teeters on approximately 100,000 square feet of sub-lease vacancy that brings the area’s overall total to over 16.5 percent. In much less drastic form, Reno is experiencing a trend similar to 2008, when the eventual release of sub-lease space on the market could affect not only vacancy, but also lease rates. Over 59,000 square feet of this sub-lease space is in the South Meadows submarket, whereas Meadowood carries 33,000 square feet and the downtown area has 9,000 square feet.
Lease rates for less than 5,000 square feet in the Class A sector are being pushed in Meadowood and Downtown. Class B and Class C lease rates are stagnant as these building types continue to lose rather than gain tenancy.
The continuing theme of Northern Nevada’s office market is slow and steady, but improving. While the office market is certainly not catching the world on fire, it is making strides toward a healthier overall environment.