The Las Vegas Valley industrial market continued to signal weakness with an increasing vacancy rate and falling average asking rents amid turbulent conditions within the sector. No new inventory came to market as several projects remain stalled or delayed due to a lack of demand and an abundance of supply. Nearly 351,000 square feet of industrial space in four buildings remain under construction with limited product in the pipeline.
The market reported approximately 841,600 square feet of negative net absorption during the quarter, bringing the total amount of vacant space to nearly 16.8 million square feet. The latest figures reflect the sixth consecutive quarter of negative net absorption and the 16.2 percent vacancy rate is a new record high for the Las Vegas region. The vacancy rate climbed 0.8 points during the past three months, but is also the smallest increase since the fourth quarter of 2008. Nevertheless, the vacancy rate has steadily climbed since the recession began in late 2007 and compared to the same quarter of the prior year (Q2 2009), the vacancy rate increased 4.0 points, or from 12.2 percent to 16.2 percent.
There will likely be an excess supply of industrial space for years, suppressing prices to levels not seen in over five years. These corrections, while appropriate given the excess supply additions and speculation during the boom years, can be painful and have long-lasting effects on pricing.
The industrial real estate market in Northern Nevada took a small step towards stabilization in the second quarter of 2010. The market experienced positive absorption and a decrease in the overall vacancy rate. Sales and leasing activity was relatively strong and the amount of new industrial space put back on to the market in the second quarter for lease, sublease or sale was more manageable than in previous quarters. No new construction was completed and new construction starts was limited to some minor build-to-suit activity.
The overall vacancy rate decreased from 15.6% at the end of the first quarter of 2010 to 15% at the end of the second quarter. This decrease was due in part to a large lease transaction s for 390,300 square feet of bulk warehouse. Assisting in this vacancy decrease is that there were not any large industrial closures like we had seen in previous quarters. The last decrease in overall vacancy was seen one year ago between the second and third quarters of 2009, when the vacancy rate dropped from 15.3% to 15.1%.
Competition from landlords for new tenants remains strong, although they are resisting the low rental rate transactions that they may have conceded to in the past several quarters.
Continued and slight decreases in the overall vacancy rate are expected. Rental rates will remain flat for the coming quarters with expectations of increases in the medium term as vacancies get closer to a healthier number and we see stronger demand from new industrial companies to our market and more market expansions from our existing tenants.
Southern Nevada Analysis and statistics compiled by Applied Analysis, Northern Nevada Analysis and statistics compiled by Colliers International Reno