The Las Vegas Valley industrial market remained fragile as significant move-outs continued to place downward pressure on pricing. The vacancy rate moved upward to 17.9 percent as 1.1 million square feet of negative net absorption was reported during the quarter. For comparison purposes, the vacancy rate is up 1.0 percentage points from the previous quarter (Q4 2010) and up 2.5 percentage points from the same period a year ago (Q1 2010). During the quarter, a single 22,000-square-foot building completed construction.
For 18 consecutive quarters, the industrial market has reported a climbing vacancy rate while nearly 14.6 million square feet of industrial space has been added to the market. With only a build-to-suit project totaling 120,000 square feet now remaining actively under construction, and no plans for development in the near term, the market should report vacancy rate adjustments by absorbing vacant second-generation space when demand returns.
Pricing in the industrial sector continued to decline, reporting an average asking rent of $0.55 per square foot per month during the first quarter of 2011. The market continues to adjust pricing and for comparison purposes, rents remain down 8.3 percent from $0.60 per square foot per month reported one year ago. Asking prices are 32.9 percent below peak levels reported in mid-2007.
Rising taxable retail sales and modest improvements in the tourism market for more than a year indicate Southern Nevada has likely put the worst behind it. Yet the local distribution and manufacturing sectors remain relatively weak in terms of demand for space. With rents at levels significantly lower than nearby markets, and a large portion of the labor pool remaining unemployed, these sectors are well positioned to take advantage of this opportunity, should their financial situations permit.
Southern Nevada analysis and statistics compiled by Applied Analysis.
Timing is everything. At the beginning of the year, there were a few companies looking to close their doors but there were also new deals to offset those departures resulting in a second consecutive quarter of positive absorption and falling vacancy. Closures outweighed new occupancy resulting in negative net absorption of 357,748 sf and an increase in the vacancy rate from 15.1% to 15.7%. If the quarter was extended another two weeks, there would likely be strong positive net absorption.
There were three large deals completed in the first quarter. All three were ownership transactions. Brightpoint purchased a 263,924 sf facility in South Meadows for $11,500,000, Laddawn purchased a 100,611 sf facility at 650 Lillard and Schluter built a facility of 90,000 sf on USA Parkway. In total, there were 33 transactions totaling 915,311 sf of gross absorption.
Asking rents remain low as landlords tire of waiting for tenants to act and try to promote occupancy with cheap rent. With ample product throughout the market, rents aren’t expected to increase any time soon. Vacancy needs to drop for a few quarters and ultimately fall below 13% before landlords talk about firming up rents.
Construction was good in the first quarter as the roof went on the Schluter build-to-suit of 90,000 sf. The expectation for construction throughout the remainder of the year is low. There is just one additional project of 21,875 sf planned for the remainder of the year but there are a few large 600,000+/-sf built-to-suits under negotiations which could add to construction numbers significantly.
In summary, although Q1 numbers were not as good as expected, the Northern Nevada industrial market sentiment remains positive. If the majority of the large prospects commit to the area, the story at the end of the second quarter will be of surprisingly good absorption and decreasing vacancy. When one views activity and numbers over a three quarter span, there is hope it will paint a picture of positive market trends and the first quarter numbers will be seen as a head fake and not a turn backwards.
Northern Nevada analysis and statistics compiled by NAI Alliance.