During the first quarter of 2009, the Las Vegas commercial retail sector posted its second quarter of negative net absorption and a record-high vacancy rate. Demand turned negative as a number of retail stores closed their doors and a significant amount of space entered the market. Selected retail closings included Circuit City stores, Great Indoors in Boca Park, two Sportsman’s Warehouse locations and selected grocery anchors.
Average vacancies reached 9.3 percent by quarter-end, which was up from 7.4 percent reported in the fourth quarter of 2008. Compared to the first quarter of 2008, vacancies were up 3.7 points from 5.6 percent. Vacancy rates are well off their 10-year average of 3.3 percent and are expected to remain elevated during the next several years as a rebalancing in the commercial retail sector will be required.
The market witnessed 812,900 square feet of new space in a handful of retail centers, while approximately 221,000 square feet of negative net absorption was reported market-wide. The net move-out figure was significant, particularly given the relatively high level of market expansion. At the close of the quarter, total market inventory reached 51.3 million square feet, while another 2.5 million square feet were under construction. Included in the under-construction figure is nearly 1.7 million square feet of product that has actually stopped development, suggesting limited product is likely to enter the market in the coming quarters.
With the continued slowdown of the housing market and tremendous pullback in consumer spending, it appears that the beginning of 2009 is playing out like the end of 2008 as retailers continue to close stores and consolidate. The disappointing Christmas shopping season was ranked as one of the worst in forty years. To date, we have seen Circuit City, TGI Friday’s, four Long’s Drugs, Home & Garden Direct, Tequila Beach, Household Finance, Baja Fresh in Sparks, multiple Domino’s Pizzas and several independent retailers and restaurants shut their doors. Combined with the widespread store closures in 2008, the vacancy rate has been pushed up to historic levels. In the first quarter, we had negative net absorption of 43,569 square feet as the vacancy rate hit 14.98 percent, up from year-end 2008 of 14.05 percent–significantly higher than the national average of 8.4 percent. The only anchors to open were Best Buy in the Legends at Sparks Marina and Staples in the Shopper’s Square expansion. Construction has slowed substantially with the exception of two projects; The Legends at Sparks Marina and Shopper’s Square expansion in the Park Lane submarket. The Legends is set to transform the economic and tourist-based landscape of Northern Nevada with their $1.2-billion, destination retail and entertainment center encompassing more than one million square feet. It is currently under construction at the intersection of Interstate 80 and Sparks Blvd and is scheduled to open phase one this summer joining Scheel’s All Sports, Target and Best Buy.