Las Vegas Valley “spec office” vacancy rates during Q3, 2015 declined 0.3 points to 21.3 percent from Q2, 2015. Compared to Q3, 2014, the office vacancy rate is down 0.3 points, from 21.6 percent. Q3’s vacancy rate-decline means that the Valley’s office market has been improving for seven of the last eight quarters. Vacancy rates ranged from 15.2 percent for Class C space to 32.4 percent for Class A space at the end of Q3.
There was one spec office completion in Q3. This was the Class B 47,000-square-foot Corona del Mar Corporate Center in the southwest submarket. On a year-over-year basis, completions stand at 269,900 square feet. For Q3, the Valley’s spec office inventory ticked up to 43.1 million square feet.
Net absorption in the Valley’s Spec Office sector for the quarter was 200,200 square feet. On a year-over-year basis, net absorption was 353,800 square feet. By product, medical led the way with 291,000 square feet. Class C posted 178,500 square feet in gains, followed by Class A with 119,800 square feet. Class B brought up the rear, posting a year-over-year net negative absorption of -235,400 square feet.
Spec office space under construction in Q3 was 218,000 square feet. Two projects comprised this space: Phase 2 of Tivoli Village in the northwest submarket (Class A-68,000 square feet) and the Union Village Medical office building in Henderson (Class A-150,000 square feet), part of a new mixed-use development that includes the 142-bed Henderson Hospital as the anchor. Lastly, there were 419,600 square feet of planned office space at the end of the third quarter.
On the eve of a dynamic Q2, activity within the Northern Nevada office market decelerated in Q3. Historically, it has not been abnormal to see fluctuation in tenant and owner user inquiries in Q3 performances and the market will see positive growth and absorption by year end.
The market experienced approximately 84,000 square feet of negative net absorption. The majority of this can be attributed to the release of space located at 885 and 887 Trademark Drive. These two buildings were originally single tenant facilities that are being repositioned as multi-tenant predicting that new ownership is on the horizon.
This leads to the discussion point of the rate spectrum specific to the South Meadows submarket. The spread in comparative rates between freeway situated office buildings and infill office buildings is at a peak. While NevDex Properties achieves rates over $2.00 per square foot/month, full service, property owners of buildings interior to this suburban market are experiencing rates of 20 to 30 percent less. This is not only attributable to freeway visibility and access, but the recondition of the assets in recent months with high-energy, modern common area finishes.
The market stands at 15.92 percent vacancy. Predicting approximately 40,000 square feet of net new occupiers to the market Q4, year-end should result in a 15 percent overall vacancy, finishing stronger than we started 2015.