Commercial Real Estate Market - December 2008

Office Market Summary

Third Quarter 2008

Las Vegas

By the close of the 3rd Quarter 2008, the Las Vegas office market reached new heights in terms of vacancy. With nearly 8.2 million square feet of available space and market inventory of 48 million square feet, vacancy levels reached 17.0 percent as of September 30, 2008. Availability represented a slight increase from the 16.8 percent reported in the preceding quarter (2nd Quarter 2008) and was up 3.8 points from the 13.2 percent vacancy factor one year ago. From two years ago, vacancies climbed by 6.7 points from 10.3 percent and from the low point of 8.2 percent in the 3rd Quarter of 2005, vacancies have more than doubled.

During the 3rd Quarter, the market reported 651,400 square feet of new supply located in 19 projects. Notable completions during the quarter were located in the southwest, south and northwest portions of the Valley and included: (a) speculative space at Sunset Pilot Plaza (b) multiple buildings in the Park at Palisades in the north submarket (c) several buildings in Cheyenne West Professional Centre (d) office space located in Highland Plaza and (e) portions of the mixed-use Metreon complex at West Flamingo Road and the I-215.

In addition to the existing inventory of 48 million square feet, the market is anticipated to expand by another 2.6 million square feet during the next year based on the amount of space in projects already under construction. In addition to active projects, plans for another 4.3 million square feet remain on the drawing board in the form of planned projects. A large share of planned activity will not move forward as currently programmed due to fundamentals within the local economy and limited access to capital.

Reno-Sparks

Last quarter, it was indicated that the returning of space to the market would slow and it did.

In the 3rd Quarter, the market experienced only 4,347 square feet of negative net absorption, yet it still made it the sixth consecutive quarter of negative net absorption. The year to date net absorption totals a negative 176,000 square feet.

This fact has not gone unnoticed by Northern Nevada landlords. Virtually all have become quite aggressive with lower lease rates or offering other substantial concessions to tenants. As indicated in the 2nd Quarter of 2008, the most common concession is free rent, and during the 3rd Quarter, it was not uncommon to see a free rent concession between six and 12 months.

Last quarter showed a 10 percent drop in effective rents from a year ago. When comparing the 3rd Quarter to the same period in 2007, effective rents are coming in at nearly 20 percent lower. In fact, some landlords have dropped their asking rents by that amount, as they are fearful if they do not secure tenants in the market today, they could be sitting on vacant space for a few years.

The South Reno Corridor contains the bulk of the direct and sublease space in the market, making it the most active submarket in the area. With vacancy exceeding 28 percent, tenants willing to locate their business in South Reno will receive the most attractive offers. We are just starting to see office building foreclosures and with the lack of liquidity and the conservative underwriting by local banks, many owners cannot refinance.

Southern Nevada Analysis and statistics compiled by Applied Analysis

Northern Nevada analysis and statistics compiled by Colliers International Reno