The Las Vegas Valley industrial market reported its highest vacancy rate in history through the second quarter of 2009. With nearly 12.3 million square feet of vacant industrial property, market-wide vacancies reached 12.0 percent of inventory, which exceeded the previously recorded high of 11.4 percent in the third quarter of 2002.
The vacancy rate jumped from 10.7 percent in the preceding quarter (Q1 2009) and from 8.3 percent one year ago (Q2 2008). The sharp increase in vacancies was driven by negative net absorption of 1.1 million square feet during the quarter, bringing the year-to-date figure to 2.6 million square feet. Also during the quarter, the market welcomed a modest share of new product as 189,000 square feet of space completed construction.
At the close of the second quarter of 2009, the market reported total inventory of 102.7 million square feet with another 816,000 square feet under construction. Plans for another 1.7 million square feet remain on the drawing board.
While vacant property remains scarce within the Las Vegas Valley, valuation in the industrial sector has rapidly declined as the current economic cycle drives vacancies upward and land prices to virtually zero.
Market-average asking prices continue to show signs of weakness. Movement within the market is coming to a standstill while regional and national distributors focus on aligning their costs with actual output, which can be seen in elevated unemployment rates. As the current economic recession enters its twentieth month, we can expect the discussion of expansion and relocation plans to move to a point beyond 2009. As vacancies may rise during this cycle, expect asking rents to diminish further as property owners react to market forces, competitively filling space with tenant-favorable leases.
The industrial real estate market continued on a downward trend in the second quarter of 2009. We experienced the seventh straight quarter of increased vacancy and our third straight quarter of negative net absorption.
As we strive to find positive news in the market analysis, we observe that the sublease vacancy rate decreased 23% since the first quarter of this year, the market welcomed a new major industrial tenant this quarter which occupied 235,000 square feet, and, overall, the velocity of the downward trend appears to be decelerating.
While net absorption was negative again this quarter, it was significantly less negative than the previous two quarters. While the overall vacancy rate increased, it increased at a significantly smaller percentage than the past several quarters.
Also, no new speculative industrial construction was started this quarter, which will help stabilize the vacancy rate in the coming quarters.
Of the 73,235,709 square feet of industrial property tracked by the Colliers Research Department, 15.3% is vacant and/or being offered for sublease. This represents a 5.5% increase over the vacancy rate at the end of last quarter (14.5%). As previously mentioned, the sublease vacancy rate decreased 23% since last quarter. Hopefully, this trend will continue as it is partially representative of companies who may be ceasing local operations in the market due to difficult economic conditions.
Given no new industrial construction starts and nothing in the construction pipeline, future vacancy rate increases will be limited to companies who down-size or close operations.
Southern Nevada Analysis and statistics compiled by Applied Analysis
Northern Nevada Analysis and statistics compiled by Colliers International Reno