Commercial Real Estate Market - February 2010

Industrial Summary

Fourth Quarter 2009

Las Vegas    

    The Las Vegas Valley industrial market continued to deteriorate with sustained negative absorption, while the remainder of ongoing construction projects wrapped up during the fourth quarter of 2009.  Inventory expanded by 462,000 square feet during the quarter, or 1.0 million square feet for 2009, pushing inventories to 103.6 million square feet at year end. Space completed during the past year represented the lowest level since our data began being reported in the early 1990s.

    Demand for industrial space continued to contract as the sector posted a negative net absorption of approximately 715,300 square feet during the quarter.  With each quarter of 2009 posting negative demand, the market witnessed a negative net absorption of 3.8 million square feet for 2009, the first year in recent history in which more space was vacated than moved into.

    The imbalance in supply and demand continued to break barriers as the vacancy rate reached 13.7 percent by year-end.  During the preceding quarter (Q3 2009), the market reported vacancies of 12.6 percent, while the vacancy rate one year ago stood at 9.1 percent. For perspective, the 10-year historical average vacancy rate is 7.9 percent.  The rise in vacancies impacted pricing, with average asking rents trending downward for the fourth consecutive quarter.  On average, across the valley and all product types, asking rents of $0.63 per square foot per month remained down 7.4 percent from the $0.68 witnessed during the previous quarter and 18.2 percent from the $0.77 reported just one year ago.

Reno-Sparks    

    While small, the fourth quarter of 2009 represented a step backwards from the positive market signals seen in the previous quarter. In the fourth quarter of 2009, the vacancy rate inched up slightly and absorption was again negative, representing that more industrial real estate was vacated than was occupied in the quarter.

    The primary reason for this small step backwards is primarily due to the large amount of industrial facilities that were vacated in the fourth quarter. Leasing activity, while down relative to two years ago, was the second most active quarter in 2009.

    The fourth quarter was defined by an oversupply of market inventory in all size ranges and product types, high landlord and seller motivation, and the majority of demand limited to existing market tenants moving into same or smaller sized industrial facilities.

    In looking at the big picture, the industrial market has reached a relative bottom. While there have been significant increases in overall market vacancies, continued soft demand, and strong downward pressure on lease and sale rates, we are seeing signs of market stabilization.

    Expect a long, slow, haul, but it is hopeful that 2010 will be the year that Northern Nevada begins to eat away at our record breaking vacancy rates. Hopefully, there will be less industrial tenant departures and consolidations, although there will be several significant ones, including Dell Computers and Coates and Clark, who have already announced departures in 2010.

    Market conditions are expected to continue to be a struggle for developers and landlords and to be an incredible time for tenants and buyers.

Southern Nevada Analysis and statistics compiled by Applied Analysis, Northern Nevada Analysis and statistics compiled by Colliers International Reno