The Las Vegas commercial retail sector continues to be impacted by the current economic climate, a deteriorating housing market and low consumer confidence levels. Fundamentals within the market prompted the closing of various retail outlets over the past several quarters, with additional closures possible. Several national retailers have recently entered bankruptcy protection or remain on investor watch lists, including Linens ‘n Things, Mervyn’s, Circuit City and other retailers seeking to right-size within the market. Vacant space in anchored centers totaled 3.1 million square feet.
Market expansion during the quarter totaled 307,000 square feet, which outpaced the market demand of 232,000 square feet. The latest market activity resulted in an elevated 6.3 percent vacancy factor, which is the highest reported level in well over a decade. Vacancy rates are up from the 6.1 percent in the preceding quarter (2nd Qtr 2008), and up more significantly from the 3.7 percent reported just one year ago (3rd Qtr 2007).
By the close of the 3rd Quarter, the market reported 3.1 million square feet of anchored retail centers under construction, with another 11.5 million square feet in varying stages of planning. Selected projects under construction at quarter-end included the mixed-use Summerlin Centre in the west submarket, phase two of Lake Mead Crossing Power Center in Henderson, anchored by Home Depot, the mixed-use Tivoli Village at Queensridge and The Edge in Mountain’s Edge anchored by Vons. Timing for planned projects will continue to adjust to market conditions, including availability in the capital markets.
The 3rd Quarter of 2008 has been witness to a turbulent retail market as the perfect storm continues to pummel retailers. Northern Nevada has seen over 35 stores close or will be closed before years end.
The hardest hit sectors include specialty, luxury, clothing, furniture and restaurants. This has caused the vacancy rate to rise to just over 11.5 percent at the end of the 3rd Quarter and an estimated vacancy of 13.35 percent by the end of the year. This is the highest vacancy rate in Northern Nevada in 25 years.
So what does this mean to our local retailers in Northern Nevada? A large amount of inventory is being placed back on the market, which will put downward pressure on rental rates, new construction may come to a halt and absorption will be flat or down, as more vacant space is added to the market. Leasing incentives will increase as landlords will become even more aggressive to backfill failed retailers.
Retail sales through the holiday season will play a major role in determining which retailers stay afloat. “Black Friday” sales surprised experts, as they were almost 11 billion dollars above last year, a three percent increase. Most companies are weathering the storm by reducing inventories, merging with similar companies, restructuring debt and raising new capital. These restructured retailers will be better positioned to expand and take advantage of retailers who wrecked and or sank during the perfect storm.
Southern Nevada Analysis and statistics compiled by Applied Analysis
Northern Nevada analysis and statistics compiled by Colliers International Reno