Las Vegas
While the housing depression has led to a decline in retail sales growth in the Las Vegas Valley, an increase in retail employment indicated continued growth for the Valley’s retail market. The Nevada Department of Employment, Training and Rehabilitation recorded 104,900 retail jobs in December 2007.
Construction activity was high with 561,800 square feet of new retail space added in the fourth quarter, increasing the Valley’s inventory to a total of 40.3 million square feet. All of this new retail space was Community Center space located in the North Las Vegas submarket. Fourth quarter absorption of 523,459 square feet is lower than completions, resulting in a closely balanced absorption-to-completion ratio of 93:1. Consequently, vacancy increased moderately to 3.1 percent in the fourth quarter.
Given the large amount of new retail space entering the market and many projects at virtually full occupancy, it is not surprising that rents continued their ascent in 2007, settling at $2.17 per square-foot NNN.
Of the 3.17 million square feet of forward-supply, 63 percent was under construction with the remaining in the planning stages. Notably, the Valley has seen no completions of Power Center space since 2003, however, more than 1.2 million square feet is currently under construction, with another 450,000 square feet planned.
If all of the anchored retail space presently under construction or planned were completed, it would represent a 7.9 percent increase in the Valley’s retail space inventory.
Reno-Sparks
For the first half of 2007, cash registers kept ringing up sales in spite of the wobbly housing market, soaring gasoline prices and high levels of debt. Although consumer confidence began to diminish later in the year, some retailers continued to seek expansion opportunities while others pulled back. Locally, retail industry fundamentals remained strong as most new developments planned or under construction were in-fill or catching up to the housing boom of the last several years.
Caution and uncertainty will most likely characterize 2008. Although it has never been so difficult to make projections, I believe the retail market should stay in remarkably good shape. Hopefully, vacancy rates will remain stable with a possibility of inching up. Rents, particularly in new developments with excess shop space and older B & C properties, could decrease slightly and Landlords may need to consider incentives as Retail brokers report that some tenants are now pushing back on rents and re-trading deals. And while the tenant pool may drop off to some extent with lease-up times and negotiations taking longer, deals will get done.
The housing market will eventually recover and retail will once again have rooftops to follow. Until then and based upon current market conditions, I am predicting that year-end vacancy rates will increase slightly to 8.5 percent.
