Second quarter 2007 industrial-related employment was up from Q2, 2006, indicating continued growth in demand for industrial space in the Las Vegas Valley. According to the Nevada Department of Employment, Training and Rehabilitation, 171,300 industrial-related jobs were recorded in June 2007, a net increase of 800, from June 2006. The Las Vegas Valley’s speculative industrial vacancy rate increased by 0.1 percentage points to 4.4 percent in second quarter. This increase in vacancy was also accompanied by a rise in the average monthly asking price, from $0.81 per square foot to $0.82 NNN. East Las Vegas and West Central experienced the highest rent increase. Henderson and Airport also experienced rent increases in second quarter.
Direct net absorption in second quarter of 1,084,649 square feet was lower than that recorded in first quarter 2007. Overall, industrial completions in second quarter, 2007 totaled 1,286,688 square feet, a decrease from 2,271,923 square feet in first quarter 2007. This resulted in an absorption-to-completion ratio of .84 foot of demand for every foot of supply, which was the same as first quarter, 2007. Additionally, 1.28 million square feet of new space entered the marketplace. The North Las Vegas submarket led Valley completions in quarter two with 574,293 square feet.
Warehouse distribution industrial space had the highest net absorption in second quarter with 711,575 square feet, followed by light distribution, light industrial and R&D flex.
The industrial real estate market in Northern Nevada remained strong during the second quarter. While the market vacancy rate increased due to the completion of a significant amount of new industrial product, market demand increased. Of the 64,021,083 square feet of industrial real estate, 7.4 percent is currently vacant. The amount of vacant space increased 1.3 percent since the first quarter, primarily driven by the completion of three large construction projects. These projects include 429,000 square feet at the Lear Industrial Center in Stead, 300,000 square feet and 601,750 in the Tahoe Reno Industrial Center in McCarran Nevada. The new construction projects are primarily high-cube, cross-dock, and distribution projects located in the outer submarkets of Stead and Spanish Springs to the North, and McCarran to the East.
Vacancy rates will continue to rise and absorption will remain strong although it is not expected that the newly completed construction be absorbed quickly given the size of our market and the time to attract new companies. Rents in our market will rise consistently in the short, medium, and long terms. Continued cheap capital will spur additional speculative development in our market by institutional companies. As we move into an over-supply situation in the short to medium term, distribution tenants will have more options and receive favorable leasing incentives. Our overall industrial market will continue to grow at a strong pace.