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You are here: Home / Departments / Commercial RE Report / Industrial Summary: Second Quarter 2011

Industrial Summary: Second Quarter 2011

August 1, 2011 By Nevada Business Magazine Leave a Comment

Las Vegas

The Las Vegas Valley industrial market slowed to a level not seen in several years.  The vacancy rate edged up slightly to 18 percent as 135,600 square feet of negative net absorption was reported during the second quarter. For comparison purposes, the vacancy rate is up 13 basis points from the previous quarter (Q1 2011) and up 1.8 percentage points from the same period a year ago (Q2 2010).

For 19 consecutive quarters, the industrial market has reported an increasing vacancy rate as approximately 14.7 million square feet of industrial space has been added to the market during the same timeframe.  A single build-to-suit project totaling 120,000 square feet remains actively under construction.  With no material plans for future development in the near term, future vacancy rate improvements will primarily be sourced to absorption of second-generation space when demand returns.

Pricing in the industrial sector declined marginally on a quarter-over-quarter basis to an average asking rent of $0.54 per square foot per month during the second quarter of 2011 (down from $0.55 per square foot).  Pricing adjustments continue to take place as supply outstrips demand; rents remain down 6.8 percent from the $0.58 per square foot per month reported one year ago.  Asking prices are 34.3 percent below peak levels reported in mid-2007.

While the vacancy rate has increased for the past several years, the latest period reflects the least amount of negative net absorption without new product being delivered to the market since the downturn began.  It is also the first time since late-2008 that positive absorption was reported in a number of submarkets, which was at that time largely attributable to swelling levels of new product coming online.  Evidence suggests that the free-fall in occupancies may be subsiding, but volatility will remain as the industrial sector remains fragile.

Southern Nevada analysis and statistics compiled by Applied Analysis

Reno-Sparks

Toward the end of last year, talk of an economic recovery brought companies out from under their shells to look at space.  Following two years of few new deals and many local closures, having real prospects looking at the market is encouraging. The first quarter was a disappointment as hopeful deals were delayed getting signed and the market was surprised with unforeseen closures resulting in negative absorption.  This quarter everything came together as anticipated with numerous new large transactions signing and few closures.

There were six large transactions completed this quarter.  Large leases for Q2 included Toys R Us (303,000 sf), GSI Commerce (282,500 sf), Excel Logistics (180,456 sf), Ozburn-Hessey Logistics (163,200 sf), Hood EIC/Ebara Corp (162,600 sf) and American Red Cross (125,875 sf).  In addition, commitments were made by Urban Outfitters and NOW Foods for build-to-suits of 472,720 sf and 130,000 sf respectively. In total, there were 37 transactions equaling 1,873,847 sf of gross absorption.

The market is headed towards higher rents in the future with falling vacancy.  For now, landlords sitting on vacant buildings for a number of months or years are continuing to meet tenants low rent expectations to fill vacancy resulting in low effective rent.  Market vacancy stands at 15.1 percent and will need to drop below 13 percent with continued interest before rents firm and head up.

In summary, the market experienced a perfect storm of tenants all signing within a tight period of time.  Luckily, deals were inked and not delayed.  The third and fourth quarters are not expected to match this quarter’s exceptional activity.  Baring any new economic crisis, the year should finish with two moderately positive quarters resulting in an overall good year.

Northern Nevada analysis and statistics compiled by NAI Alliance Reno

 

Filed Under: Commercial RE Report Tagged With: commercial real estate, industrial

Paul Krakovitz: Intermountain Healthcare

Edward Vance: EV&A Architects

Scott Arkills: Silver State Schools Credit Union

Terry Shirey: Nevada State Bank

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