Through the 3rd Quarter of 2008, the Las Vegas Valley industrial market continued to report vacancies in the single digits while limited near- to mid-term supply additions will likely keep availability in line with historical averages. During the quarter, the market posted 495,000 square feet of net absorption, bringing market demand for the first nine months of 2008 to 1.6 million square feet. New supply outpaced market demand as inventory levels increased by 1.1 million square feet during the 3rd Quarter, elevating year-to-date expansions to 4.0 million square feet. As of the 3rd Quarter 2008, total inventory reached 101.1 million square feet in 3,336 buildings.
Market activity resulted in a vacancy rate that reached 8.7 percent, which was the highest rate reported in almost five years. Current availability represented a modest increase from the 8.2 percent reported in the preceding quarter (Q2 2008) and a substantial increase from one year ago (Q3 2007), which was up 2.6 points from 6.1 percent.
With the recent completion of major build-to-suit projects, the amount of space under construction fell dramatically to the lowest level in over five years. The market reported only 1.9 million square feet of space under construction and another 6.6 million square feet planned for future development. Additionally, given the current state of the financial markets, the ability for project proposals to move forward is much more limited. The southwest, north and northeast submarkets are reporting the highest concentration of planned projects.
With all of the grim financial news discussed ad nauseam by every media outlet, it can be expected for this report to be dismal. On the contrary, Northern Nevada’s industrial market continues to post positive absorption and construction continues, but at a slower pace. Sublease vacancies have decreased and rents remain relatively flat. As expected, the latter half of 2008 has seen a slight uptick in activity in both sales and leasing. Although we have seen an increase in activity, tenants and landlords remain cautious as they wait for impending financial news from Wall Street as well as the upcoming presidential shift.
The Northern Nevada industrial market posted positive net absorption of 329,800 square feet in the 3rd Quarter. When comparing the same period last year, absorption is only 18.9 percent of the levels seen during the same period in 2007, which is indicative of the current market conditions. Despite the lower levels of absorption for the same period in 2007, continuing to stay in the positive is a good sign.
When analyzing the reason for the recent upswing in activity, several possibilities arose. Perhaps, the small decrease in rental rates or the larger tenant improvement dollars offered are beginning to motivate tenants off of the fence. Conceivably, the slight decrease in fuel prices coupled with concessions offered by landlords also aided in bolstering activity. While rents did not decrease in the 3rd Quarter, we continue to see downward pressure on lease rates.
Southern Nevada Analysis and statistics compiled by Applied Analysis
Northern Nevada analysis and statistics compiled by Colliers International Reno