Las Vegas
The Las Vegas Valley office market continued to deteriorate in 2008 as new supply outpaced market demand. The latest economic conditions resulted in fewer office-using business expansions and relocations, pushing the vacancy rate to a record-high 17.3 percent. The latest availability figures represented a 0.5 point increase from the 16.8 percent vacancy rate reported in the preceding quarter (Q3 2008) and were 3.7 points ahead of 2007’s year-end vacancies.
During the final quarter of 2008, the market expanded by 246,800 square feet, contributing to annual completions of 2.8 million square feet. Construction activity retreated from the high reported in 2007 (3.7 million square feet) and reflected the lowest amount of annual new supply since 2004.
From a demand perspective, the market witnessed negative net absorption of 43,000 square feet during the fourth quarter. Negative net absorption suggests a net loss of occupied office space during the quarter. Despite the final quarter’s net move-out, the annual total remained positive with 637,800 square feet of net absorption on the year.
As a significant amount of space competes for a relatively few number of tenants, we expect effective pricing to erode, higher concessions to become prevalent and lender foreclosure activity to increase. Consequently, forward-looking supply is expected to dwindle as projects under construction face leasing challenges and financing for planned projects becomes a near impossibility. Well-capitalized developers and investors will weather the storm, while those with leveraged balance sheets will be forced to renegotiate debt or walk from projects altogether. From a user perspective, attractive opportunities will emerge in 2009.
Reno-Sparks
In a world seemingly void of positive news, the Northern Nevada office market was an exception, as the fourth quarter ended on a positive note. The Hartford Insurance Group has extended their lease of 29,000 square feet, effectively removing their available sublease space from the market. This contributed to the fourth quarter net absorption to finish the year with a positive 29,503 square feet. This also reduced the vacancy in the South Reno Corridor from 28.1 percent to 26.9 percent.
Amid the overwhelming negative news, their is still some positive news to be reported. The overall net absorption finished the year at negative 147,474 square feet. This was the second consecutive year with negative net absorption, bringing the two year total to negative 234,312 square feet, which equates to approximately 1,000 lost office jobs.
The three submarkets showing the greatest loss of occupancy in the fourth quarter were: Meadowood, Central and Downtown. This is in contrast to 2007, where the majority of the loss was in the South Reno Corridor. It is believed this is due to tenants relocating to take advantage of rent concessions in this submarket. The overall vacancy rate for office buildings over 10,000 square feet increased from 15.6 percent at the end of 2007 to 19.2 percent at the end of 2008. However, the vacancy rate appears to have peaked in the third quarter at 19.6 percent and is hopefully on the rebound.
As stated previously, the South Reno Corridor had the highest vacancy at 26.9 percent, while the lowest vacancy rates were found in West Reno at 10.2 percent and Central at 12.2 percent respectively.
