Las Vegas Valley’s speculative office vacancy rate in Q2 2016 declined 2.5 points to 16.2 percent from Q1 2016. This was a big decline after the first rise in vacancy in four quarters during Q1. Vacancy rates ranged from 14.1 percent for Class C space to 21.3 percent for Class A space at the end of Q2.
There was one office completion in Q2, the Park at Spanish Ridge, a 35,000 square feet Class B building in the southwest submarket. On a year-over-year basis, completions stood at 112,381 square feet at the end of Q2.
Net absorption for the quarter was a +1.1 million square feet. On a year-over-year basis, net absorption was 1.2 million square feet. By product, Class B office led the way with 547,636 square feet in gains on the year. Class A and Class C posted 366,568 square feet and 196,715 square feet of gains, respectively. Medical brought up the rear, recording a year-over-year net positive absorption of 121,122 sf.
Under-construction space in Q2 was 268,028 sf. Four projects comprised this: Phase 2 of Tivoli Village in the northwest submarket (Class A-68,000 square feet), the Union Village Medical office building in Henderson (Medical-150,000 square feet), one building at Pecos Springs Business Park in the Airport submarket (Class C-8,028 square feet) and Pace Plaza, an office building in the Southwest submarket (Class B-42,000 square feet). Lastly, there were 466,000 sf of planned office space at the end of the second quarter.
The office market reconvened and put on a display of resurgence with seven transactions totaling almost 93,000 square feet in Q2. Of these seven, four were expansions within the market representing over 36,000 square feet. The net product resulting from market activity was almost 18,000 square feet of net absorption and a drop in the overall vacancy rate to 12.87 percent.
ITS Logistics expanded its office presence downtown to 9,000 square feet and Klondex Mines had a strong entry to the market with a 12,629 square feet lease. Additional tenants new to the market leasing office space under 5,000 square feet include Bremer, Whyte, Brown & O’Meara LLP, Terrain Pharmaceuticals LLC, Sierra Mountain Mortgage LLC and Bombora, Inc.
Typical trends endure; Class A product, especially in the Meadowood and Downtown submarkets, is at an all-time demand. The Kietzke Lane corridor shows 8 percent vacancy and the top five downtown office buildings score a 7.69 percent vacancy.
As a result of these long-standing trends, a new tendency is born. The Meadowood submarket stands at 9.03 percent vacancy. Rates within that submarket push $2.50-$2.75 per square foot, full service gross. These rates are outperforming the high mark of the past set by the popular Magnolia Village office development built in 2002-2003. What it is also doing is pricing certain tenants out of specific buildings and exposing peripheral quality buildings at a cost benefit.
Southern Nevada analysis and statistics compiled by RCG Economics, Northern Nevada analysis provided by Dickson Commercial Group.