The Las Vegas commercial retail sector posted a record-setting level of vacant space in the 2nd Quarter of 2008. Recent market conditions, including the performance in the residential sector, prompted the closing of various retail outlets, including Thomasville Furniture, Wickes Furniture, Sharper Image and various grocery anchors, such as selected Smith’s and Albertsons stores. Additional closures are possible for retail centers that are currently occupied by a Wild Oats Market, selected Vons locations, Linens ‘N Things and Mervyn’s locations. Vacant space in anchored centers totaled 3 million square feet, or 6 percent of total inventory as of the 2nd Quarter.
During the 2nd Quarter, the market expanded by 325,000 square feet with the market posting negative absorption of 19,000 square feet. The latest market activity resulted in an elevated 6 percent vacancy factor, which is the highest level reported since Applied Analysis began tracking the market in the mid-1990s. This is up from the 5.3 percent in the preceding quarter (1st Quarter of 2008), and up more significantly from the 3.3 percent reported just one year ago (2nd Quarter of 2007). By the close of the 2nd Quarter, the market reported 3.1 million square feet of anchored space under construction, with another 12.7 million square feet in varying stages of planning. Future supply includes several competitive regional retail outlets and mixed-use centers that will likely see plans evolve over time.
The 1st and 2nd Quarters of 2008 have been witness to a turbulent retail market. A decline in home values, coupled with tightening lending practices has resulted in a bottleneck of capital. This has forced some small retailers, primarily single store or multiple store franchises, to tap into their home’s equity to expand or relocate and fund working capital. Similarly, large retailers, with strong credit, that are publicly traded, are having a hard time raising capital as well. In addition, the cost of goods sold for the majority of retailers, such as energy, shipping and oil-based products have risen rapidly due to overseas consumption of natural resources. A shift in domestic agriculture has placed pressure on ethanol production by increasing corn production and replacing and lowering the supply of vegetables causing a rise in the price of produce and livestock feed. This in turn increases the cost of poultry, dairy, eggs, beef, pork, etc. These higher expenses translate into a lower profit margin for retailers because they can not raise prices fast enough in a slow economy. However, the closing and restructuring of both national and local retailers and restaurants can have beneficial repercussions. Many companies have started running leaner operations by reducing inventories, merging with similar companies, writing off or down bad debt and/or restructuring. When the economy rebounds, the companies will be better positioned to expand and take advantage of other retailers who were unable to weather the storm.
Southern Nevada analysis and statistics compiled by applied analysis
Northern Nevada analysis and statistics compiled by Colliers International Reno