The Las Vegas Valley’s industrial market experienced rising vacancies due to a slowdown in market demand. During the 2nd Quarter of 2008, the market posted 695,000 square feet of net absorption, bringing demand for the first half of 2008 to 1.3 million square feet. Inventory levels increased by 1.5 million square feet during the second quarter, while project completions totaled 3.0 million square feet during the past six months. At the 2008 midpoint, total inventory reached 100.1 million square feet.
Overall vacancy rates reached 7.7 percent, which represented an increase from the 7.1 percent reported in the preceding quarter (1st Quarter of 2008). Compared to the same quarter of the prior year (2nd Quarter of 2007), vacancies were up 3.2 points from 4.5 percent. While the latest vacancy rate is elevated compared to recent trends, it remains on par with the 10-year historical average of 7.6 percent.
As of June 30, 2008, the market reported approximately 2.6 million square feet of space under construction and another 6.7 million square feet planned for future development. With the recent completion of major build-to-suit projects, the amount of space under construction fell to the lowest level in nearly four years.
New supply during the last 12 months remains near a record pace, while the amount of space under construction reflects a more normalized rate of activity. By the close of 2008, industrial vacancies are projected to be in the nine percent range and speculative lease rates are projected to see zero growth in the short-run. The for sale market for freestanding buildings has been more impacted as speculative investment activity has buyers carrying pricing premiums relative to ground-up developer projects.
Although the 2nd Quarter of 2008 was not a blockbuster with regards to absorption, the Northern Nevada industrial market was able to generate positive absorption. The end of the 2nd Quarter meets with expectations as vacancy increased, absorption decreased and construction slowed. The increase in vacancy was due to newly completed product. With another 1.8 million square feet of big-box space under construction and to be completed by the end of the year, the vacancy rate could breach 12 percent. With the abundance of space on the market, landlords are competing while tenants put deals on hold to take advantage of the lowering rental rates and concessions being offered. Absorption for the 2nd Quarter was 274,839 square feet, which is a little over half of the absorption for the same period in 2007. Even with the gloomy news of the housing market and fuel prices on the rise, the Northern Nevada industrial market has faired well. In contrast to similar markets, construction in late 2006 and throughout 2007 has added a diverse range of industrial product types, increasing the options for all industrial users in the long term. With downward pressure on rental rates, Northern Nevada will continue to become more competitive with similar markets. The vacancy rate increased four basis points from 9.8 percent in the 1st Quarter of 2008 to 10.2 percent in the 2nd Quarter of 2008. The increase in vacancy is due to the completion of 566,875 square feet of space at Eagle Valley Industrial Center in TRIC. Only a few submarkets saw a decline in vacancy in the 2nd Quarter of 2008. The Sparks industrial core decreased from 9.8 percent to 8.9 percent. This decrease in vacancy was due to several leases being completed.
Southern Nevada Analysis and statistics compiled by Applied Analysis
Northern Nevada analysis and statistics compiled by Colliers International Reno