Las Vegas
The Las Vegas Valley industrial market continued to signal weakness as new space entered a market already dealing with a supply-demand imbalance. As vacancies edged upward, reaching a new high, average asking rents declined modestly. Although 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 three buildings completed construction during the quarter, with the majority being pre-leased or build-to-suit projects.
Including the additional pre-leased or build-to-suit space, the market reported approximately 37,700 square feet of negative net absorption during the quarter, bringing the total amount of vacant space to nearly 17.2 million square feet. The latest figures reflect the seventh consecutive quarter of negative net absorption and the 16.6-percent vacancy rate is a new record high for the Las Vegas region.
Pricing in the industrial sector continued to slide downward, reporting an average asking rent of $0.57 per square foot per month during the third quarter of 2010. The latest figure represents the smallest quarter-over-quarter decline (1.4%) in nearly two years, but remains down 16.2 percent from the same period a year ago (Q3 2009).
Improvements in the Southern Nevada industrial sector will lag a broader market recovery as regional competitive pressures remain high and the demand for industrial space sourced to the construction industry is expected to remain weak well into the foreseeable future. Lower prices will help, but a national recovery will be a condition precedent to a local recovery within the local industrial sector.
Reno-Sparks
The third quarter of 2010 represented a quarter of stability for the industrial real estate market in Northern Nevada.
With 34 significant industrial lease transactions and three industrial sale transactions completed, there was 151,123 SF of positive absorption which decreased the overall vacancy rate from 15.3% at the end of the second quarter to 15.1% at the end of the third quarter.
There continues to be significant downward pressure on rental and sale rates, benefiting industrial tenants and capable buyers.
The market continues to be a significant challenge for industrial landlords and sellers, especially those of whose ownership basis was defined in the past 5-7 years, as today’s market rental and sale levels are significantly below this.
Landlords are competing fiercely to capture the business of those industrial tenants who are looking to expand or upgrade their facilities while decreasing their leasing costs. The market saw two new industrial tenants this quarter, AM2T and IDC-USA. These new tenants aided the decrease in the overall vacancy rate.
For the future, expect a slow and gradual climb back to healthy market conditions, with small, quarterly decreases in overall vacancy rates and positive absorption. In the short to medium term, there will be a continued downward pressure on rental and sale rates.
Hopefully, the largest industrial closures are behind us. However, continue to keep a watchful eye on the members of the industrial market as they experience the difficult local and national economic conditions.
Southern Nevada Analysis and statistics compiled by Applied Analysis, Northern Nevada Analysis and statistics compiled by Colliers International Reno