Commercial Real Estate Market - May 2009

Industrial Summary

Fourth Quarter 2008

Las Vegas    

    The Las Vegas Valley industrial market continued its expansion, reaching 102.4 million square feet by the close of 2008. Inventory levels grew by 1.2 million square feet as a number of projects completed construction during the quarter, resulting in an annual expansion of 5.2 million square feet. The market’s expansion fell short of the 2007 new supply total of 7.2 million square feet, yet remained above historical averages.

    From a demand perspective, the industrial sector absorbed nearly 1.0 million square feet.  While market conditions have softened, the latest absorption figures reflect the completion of selected non-speculative developments, such as Cashman Equipment’s new facility in Henderson. Completions were particularly strong in the southwest, south and Henderson portions of the Valley. Throughout 2008, the market posted 2.5 million square feet of net absorption, which was well below the prior year total of 4.0 million square feet.  The current year demand total represented the lowest level since 2001, when the market reported 1.9 million square feet of absorption.

    The balance between supply and demand resulted in a rising vacancy rate that reached 8.9 percent by year-end. During the preceding quarter (Q3 2008), the market reported vacancies of 8.8 percent, well above the 6.6 percent average rate reported one year ago.  At the close of the year, approximately 0.5 million square feet of space was under construction, suggesting only modest expansions are likely during 2009.

Reno-Sparks

    The fourth quarter of 2008 was tough economically and the commercial real estate market did not emerge unscathed. Although the industrial market has held up far better than retail, office or land, the amount of stress increased measurably in the fourth quarter as witnessed by negative net absorption and a two percentage point jump in the area’s vacancy in the last quarter alone. The first half of 2009 promises to be a most challenging year. There are some brighter spots in the market, particularly from a tenant’s standpoint, and the future does look brighter than it did during any time in 2008.

    The wildcard is when the market will actually start to turn positive – with an optimistic outlook calling for a return to more positive numbers during the second half of 2009. The positive outlook stems from a return to a more competitive cost of living, better availability of employees, better lease rates, the continuing struggles in California and any potential impact from the various bailout and stimulus packages that have been pushed through.

    The first half of 2009 will be extremely challenging across all segments of commercial real estate, including the industrial market. The wildcard is the impact the TARP and Obama stimulus packages will have on our national economy. The second half of 2009 appears to be the next opportunity to see positive impacts to vacancy, absorption and rental rates.

Southern Nevada Analysis and statistics compiled by Applied Analysis

Northern Nevada analysis and statistics compiled by Colliers International Reno