In the first of quarter 2008, the Las Vegas Valley’s speculative and non-speculative industrial market saw 2.8 million square feet of new space enter the market. This increased the Valley’s inventory from the previous quarter by 2.8 percent to 102.3 million square feet. Sublease space represents a small but growing portion of the Valley’s industrial market, rising from 132,000 square feet to 462,000 square feet. Of the 462,000 square feet recorded, 411,000 square feet were vacant.
Net absorption fell short of completions, resulting in an absorption-to-completion ratio of 56 feet of demand for every foot of supply. Vacancy increased by one percentage point to 7.5 percent. Average monthly lease also increased, from $0.78 per square foot to $0.80 NNN.
There were more than 5.5 million square feet of industrial forward-supply space recorded at the end of the first quarter of which 1.6 million square feet were under construction and the remaining 3.9 million square feet were in the planning stages. At the past four quarters’ average quarterly absorption, there is enough existing available space to last approximately 1.8 years.
Adding all forward-supply into the mix would represent an absorption period of approximately 3.1 years. Assuming that 50 percent of the planned space is delayed or cancelled, the period would be reduced to 2.7 years.
With the first quarter of 2008 now over, it’s easy to see that 2008 may be a sluggish year for the Northern Nevada industrial market. Net absorption registered a positive 500,000 square feet primarily due to the completion of the 893,000-square-foot PetSmart building in the Tahoe Reno Industrial Center (TRIC), and two large leases signed at the Union Property Capital building.
At year-end 2007, the overall vacancy rate rose from 6.8 percent to 8.9 percent due to 1.4 million square feet of construction being completed in TRIC. At the end of the first quarter 2008, vacancy rose yet again from 8.9 percent to 9.8 percent, although construction was not the reason for the increase in vacancy.
The culprit this quarter seems to be consolidation as companies evaluate their business and shrink the space occupied to accommodate for the slowing economy. While it appears that in the short-term our market is headed toward an adjustment period, in the long-term the Northern Nevada industrial market is primed for growth.
As we move forward into 2008, expect to see the vacancy rate continue to increase although not at the rate we saw in 2007. Rents will hold firm but rent concessions may increase such as free or reduced rent for an initial period.
Southern Nevada analysis and statistics compiled by Colliers International and Restrepo Consulting Group
Northern Nevada analysis and statistics compiled by Colliers International Reno