LAS VEGAS - Southern Nevada’s commercial real estate extended its recovery and expansion in the first quarter of 2017. The industrial market began what by year’s end should be one of its largest expansions ever, the office market saw its recovery continue apace and the medical office market also saw conditions improve. Only the retail market suffered a set-back, and this relatively minor and not unexpected as it comes at the end of the retail market’s first expansion since its recovery from the Great Recession.
The industrial market in Southern Nevada has been threatening a construction boom for a few years now, and in the first quarter of 2017 that boom arrived. Over 2.2 million square feet of new industrial space was completed this quarter, and the remainder of 2017 should see inventory expand by at least 6.8 million square feet more. The rapid pace of construction sent industrial vacancy up to 6.1 percent, despite an increase in net absorption.
“We think demand for industrial space will remain steady through 2017, and by 2018 vacancy rates will begin to decrease,” remarked John Stater, the research manager of Colliers International’s Las Vegas office.
The pace of multifamily construction increased in 2016, with 1,680 units completed by the end of the year and vacancy holding steady at 3.2 percent. Demand for multifamily space remains strong in the Valley, no doubt buoyed by high home prices and increased migration into Southern Nevada. This demand is also keeping the market for multifamily investment hot. 2016 saw the sale of 22,074 units of multifamily, beating the recent record of 21,840 units sold in 2012.
After strong numbers in 2016, Southern Nevada’s hospitality market posted growth in most areas in January 2017, but saw only light sales in the first quarter of 2017. While it may be difficult to best 2016’s visitor volume record in 2017, there are no indications that visitor volume or any other measures of the hospitality market are poised for a dramatic fall. Should the hospitality market continue to be healthy, and the national economy healthy along with it, we think hospitality sales will improve as 2017 wears on. A total of 2,158 rooms sold in Southern Nevada in the first quarter of 2017, with total sales volume of $63 million and an average sales price of $29,000 per room.
Mike Mixer, EVP said, “While sales volume of hospitality was light in the first quarter, all signs are that the hospitality market will continue to thrive in 2017.”
Southern Nevada’s office market just keeps on keeping on. Not as dramatic as the industrial market, the office market managed to record yet another quarter of recovery in the first quarter of 2017. Vacancy dropped to 17 percent in the first quarter of 2017, and net absorption was 127,479 square feet, higher than one quarter ago. We think office vacancy rates will continue to fall, probably stabilizing in the 15 percent range within the next two years. As vacancy rates reach that “new normal”, expect to see more speculative office projects become viable.
Southern Nevada’s medical office market posted a fourth straight quarter of positive net absorption in the first quarter of 2017, which would be better news if this positive net absorption had also led to lower vacancy rates. Unfortunately, the completion of an 80,000 square foot medical office building in the Henderson submarket meant that vacancy increased. Still, vacancy remains lower than it was one year ago, and asking rental rates saw an increase of $0.05 per square foot (psf) on a full service gross (FSG) basis to $2.19. We think that the positive trends we have seen in the market should continue, but that the continued healthcare debate in Washington D.C. leaves the future difficult to predict.
The retail market hit another bump in the road in the first quarter, with negative net absorption brought about by the closure of some large anchor locations. Net absorption in the first quarter totaled negative 17,825 square feet, bringing the vacancy rate up slightly to 8.4 percent. Vacancy was still down on a year-over-year basis. The asking rental rate for retail space in the first quarter of 2017 was $1.36 per square foot (psf) on a triple-net (NNN) basis, $0.06 higher than one year ago. As new centers are completed over the next two quarters, we think net absorption will rebound, and that 2017 will prove to be a productive year for Southern Nevada’s retail market.
The first quarter of 2017 saw land sales decrease, compared to a quarter ago and compared to one year ago. In the first quarter there were 60 land sales totaling 454.16 acres with a total sales volume of $142.8 million. The average sales price for land in Southern Nevada in the first quarter of 2017 was $7.22 per square foot (psf), higher than in 2016 when large industrial land sales at Apex drove the average price per square foot lower, and a modest improvement over the last five years. For their part, land owners are in no hurry to sell, and are comfortable waiting until they achieve the price they want for their land. This is slowing land sales, but should commercial and industrial development continue to be strong, the need for additional land by developers will increase sales, probably three to four quarters in the future. As supply of large land parcels along the I-215 Beltway continues to shrink, the new frontier for the land market is South Las Vegas Blvd.
The full first quarter report of 2017 can be downloaded at: http://www.colliers.com/en-us/lasvegas/insights/marketnews/lvqreport.Las
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