Las Vegas
The Las Vegas Valley industrial market continued to struggle with higher vacancies while average asking rents slid downward in response to an ongoing supply-demand imbalance. No new inventory came to market as current economic conditions have stalled or delayed construction activity for most proposed projects.
The amount of occupied industrial space dipped to a level not seen in three years as the market reported approximately 916,800 square feet of negative net absorption during the quarter, contributing to the 15.6 million square feet of vacant space. The latest figures reflect the fifth consecutive quarter of negative absorption. The vacancy rate climbed 0.8 points during the past three months, pushing the vacancy rate to 15.0 percent. Compared to the same quarter of the prior year (Q1 2009), the vacancy rate increased 4.3 points, or from 10.7 percent to 15.0 percent.
With no relief in the vacancy rate, average asking rents continued to trend downward for the fifth consecutive quarter. On average, across the valley and all product types, asking rents of $0.60 per square foot per month remained down 4.8 percent from the $0.63 witnessed during the previous quarter (Q4 2009) and 18.9 percent from the $0.74 reported just one year ago (Q1 2009).
As unsustainable growth levels in Southern Nevada reported during the 2005 to 2007 timeframe came to an end, the industrial market followed suit. Current conditions suggest the sector has yet to reach the proverbial bottom. Absorption and pricing continue to fall, which suggests that pricing levels have not dropped to the level required to incent incremental demand from within or outside the market. With such an extended period of contraction, we’re likely to see average asking rents remain below pre-recession levels over an even longer period.
Reno-Sparks
The industrial real estate market continued a gradual downward slide in the first quarter of 2010.
The overall vacancy rate and the sublease vacancy rate continued to inch up, absorption was negative, and there was continued downward pressure on net effective rental rates as landlords continue to offer abated rent, early occupancy, and other leasing incentives to secure new tenants and retain existing tenants. Competition amongst industrial landlords of all property product types ranging from office/warehouse flex, to mid-market, to high-cube properties continues to be fierce. While tenants seeking new industrial facilities are rare, the most aggressive, flexible, and responsive landlords are closing deals in this market.
A significant amount of transfer or sale transactions occurred in Washoe County this past quarter. The majority of these were owner/user purchases or successful debt restructuring and, as a general rule, values appear to be down about 40% from the peak of our industrial market in 2006 and 2007.
Industrial investment opportunities remain rare. There has been a slight up-tick in the REO and bank-owned listings to sell industrial facilities indicating a higher rate of default and foreclosure.
Given the vast supply of industrial properties being offered for lease, sublease and sale, no new speculative construction was started this past quarter. Underwriting existing construction costs with today’s market lease and sale rates is impossible.
Industrial land sales have been extremely scarce. Sellers are beginning to adjust their prices down to the ‘new market’ values. It is hoped that more land transactions may happen in the coming quarters.
Southern Nevada Analysis and statistics compiled by Applied Analysis, Northern Nevada Analysis and statistics compiled by Colliers International Reno