Las Vegas:
The Las Vegas Valley’s speculative office space vacancy rate remained relatively unchanged from first quarter 2007. It increased by 0.1 percentage points to 10.9 percent. Class A vacancy increased by 3.4 percentage points to 10.5 percent, while Class C rose by .08 percentage points to 13.5 percent. The reported Class B vacancy rate was 10.6 percent (down 1.1 percentage point) and that reported for Medical space was 6.6 percent (down 1.2 percentage points).
The Valley’s office market saw an improved second quarter with absorption showing stronger performance than first quarter. Absorption reached 923,227 square feet, resulting in an absorption-to-completion ratio of .79 feet of demand for every foot of new supply. Additionally, 1.1 million square feet of new office space entered the market in second quarter increasing the Valley’s office inventory to 36,601,663 square feet. The amount of office space in under-construction and planned projects in second quarter2007 amounted to 1,415,803 square feet and 4,359,269 square feet, respectively.
Whether forward-supply of 5,775,072 square feet (assuming all of it is built) will lead to a rise in vacancy in subsequent quarters will depend on how quickly it is completed and the rate of office-oriented job creation. Using the past 4 quarters’ average quarterly absorption (708,951 square feet), we estimate that it will take approximately 14.2 quarters (3.5 years) to absorb all the forward-supply plus total available space (4,259,849 square feet) in existing buildings.
Reno-Sparks:
The first quarter 2007 activity did not carry over into second quarter as net absorption for buildings over 10,000 square feet registered a negative 23,495 square feet. Although there were some large lease transactions that occurred, most of the leases signed were by tenants moving from one location to another. The majority of the activity is in the South Reno Corridor. As we continue to see this submarket grow, we are also seeing a drastic increase in vacancy in the Old Southwest as these tenants relocate to the newer buildings in the South Reno Corridor. On the other hand, the downtown submarket continued to do well with vacancy falling from 14.4 percent to 13.8 percent. This decrease in vacancy reflects the strong interest from professional services firms wanting to locate to downtown.
In regards to construction for office buildings more than 10,000 square feet; no new construction was completed in the second quarter. However, 175,000 square feet of new office buildings are being planned with additional projects in the preliminary discussion stages. Rental rates were up slightly as increased operating and construction costs continue to impact the market. In addition, as new landlords enter the market and upgrade their buildings rent rates are increased to reflect the improvements. As for the garden office market in Northern Nevada, real estate professionals saw what is referred to as an “adjustment.” With several quarters of positive net absorption and decreasing vacancy, developers of garden office product added over 75,000 square feet of new space in the second quarter. The result was an increase in vacancy from 15.4 percent to 16.24 percent despite another quarter of approximately 35,000 square feet of absorption.