Las Vegas
The Las Vegas Valley office market showed modest improvement from the preceding quarter. After a sustained period of price declines and little construction activity, the vacancy rate broke the five-year cycle of upward movement.Ā During the third quarter, the market reported 68,900 square feet of positive net absorption, pushing the vacancy down 11 basis points from the previous quarter to 24.0 percent.
An additional 21,000 square feet of new product entered the office market during the third quarter.Ā Only two projects totaling 475,000 square feet remain under construction and are likely to be completed by late 2010 or early 2011.Ā Of the 2.5 million square feet on the drawing board, nearly 800,000 square feet is from previously stalled or delayed projects, the majority of which will likely remain that way until the broader economic environment improves.
At the end of the third quarter, the vacancy rate dropped to 24.0 percent, from 24.1 percent in the previous quarter (Q2 2010), but remains higher than the 22.5 percent reported one year ago (Q3 2009).Ā With 11.9 million square feet of vacant office space in the market, more than four years of excess supply remain to be absorbed when demand returns to historical averages.Ā The average asking rents across the valley fell to $2.09 per square foot per month, or 2.1 percent compared to the previous quarter (Q2 2010).Ā On a year-over-year comparison, average asking rents declined 8.1 percent from the $2.27 reported during the same period a year ago (Q3 2009).
With little construction activity moving forward and demand turning positive for the first time in two years, it appears that availability may be at or near the peak.Ā While it is easy to latch on to even the smallest bright spot, the return to more ānormalā market conditions is years away, but it must start somewhere.
Reno-Sparks
With all the negative news about the economy in the local news media, the office market finally has some positive news.Ā The overall office market vacancy rate in Northern Nevada declined from 22.1% to 22.0%.Ā While this is not a significant amount, it is in the right direction.
This should be the beginning of a longer term trend, unfortunately expectations are that this will not continue. While the next quarter will look even better as the new Williams Gaming building and Customs Immigration Services in South Meadows is added to statistics, the effects of shadow space will linger for a few more years.
The strongest submarket in the 3rd quarter was downtown with 17,920 square feet of positive net absorption. This dropped the vacancy level in downtown from 28.8% to 27.5%. This is good news for Reno as office tenants want to get closer to the activity in the downtown area.
This was also the first time this year that the South Reno Corridor did not have positive net absorption. This is an aberration as most aggressive transactions are in the South Meadows area.
As in previous quarters, there continues to be a flight to quality as tenants move from Class C to Class B and from Class B to Class A buildings. This is expected to play out for a few more years.
Users will also continue looking for great deals on foreclosed office buildings. Those users with comfort in forecasting their business into the future are seeing once in a lifetime buying opportunities.Ā The price for most of these buildings is far below replacement value.
The buildings that have been foreclosed upon so far have been owner user buildings. In most of these cases the underlying owner/tenant is out of business with no assets to support the mortgage payments. The buildings are vacant and fully built out. There have been very few shell buildings foreclosed upon.
It will likely be a tenantās market for two more years.
Southern Nevada Analysis and statistics compiled by Applied Analysis, Northern Nevada Analysis and statistics compiled by Colliers International Reno