Las Vegas
The Las Vegas Valley office market is experiencing more empty offices than ever before with vacancies reaching a record-high 19.6 percent. The latest vacancy figures are 2.0 points ahead of where they started the quarter and 4.9-points higher than the same quarter of last year (Q1 2008). During the current cycle, vacancies reached their low point of 8.1 percent in the third quarter of 2005, 11.5 points lower than where they were at the close of the first quarter of 2009.
During the first quarter of 2009, approximately 329,400 square feet of completed construction brought total market inventory to 48.9 million square feet. Another 1.9 million square feet of space had initiated construction. Projects reporting they had started construction but are uncertain as to their viability represented approximately 30 percent of the 1.9 million square feet classified as under construction. Plans for another 4.6 million square feet remain on the drawing boards.
From a demand perspective, the market witnessed negative net absorption of 708,000 square feet during the first quarter.
Looking forward, limited proposed projects are likely to gain financing, which may have commercial office developers seeking out alternative product types to focus on. The market is poised for a commercial construction standstill within the next year as some of these properties enter a less-than-welcoming market and others fail. Expect extended lease-up periods and falling land prices as the number of exit strategies become fewer.
Reno-Sparks
It appears we were premature in predicting the bottom of the market in the third quarter of 2008. We were hit with a slew of companies vacating space and sublease offerings in the first quarter, which pushed the overall vacancy up to 21.2%. We had negative net absorption of 95,324 square feet in the first quarter, which pushed us to the highest vacancy rate recorded since we began tracking vacancy in the Northern Nevada office market. This has not gone unnoticed by tenants, who have pushed lease rates down by about 20% from their highs two years ago. Most transactions are consummated in turn key condition, with some level of free rent to offset moving costs. Most of the tenants in the market are looking to improve their overall real estate costs by taking advantage of the soft market. There are a few out of town prospects, but they too are looking for bargains. Landlords with well maintained buildings in good locations are faring much better. While rents are clearly being pushed down, the good landlords are able to retain their tenants without having to give the same concessions as new tenants are seeing in vacant space. Rents for most renewals are down about 10% in contrast to the 20% to 25% seen in new leases. Terms for most new lease and renewals are also shorter than in the past. Many are doing two and three year terms.