The Las Vegas Valley industrial market continued to demonstrate signs of weakness in both net absorption and pricing. The vacancy rate pushed upward to a new all-time high of 18.5 percent as 476,900 square feet of negative net absorption was reported during the fourth quarter. The vacancy rate is up 0.6 percentage points from the previous quarter, and a larger 1.8 percentage points from the same period a year ago. For the year, the market witnessed nearly 1.8 million square feet of negative net absorption, a considerable slowdown from the 2.2 million and 4.5 million square feet of net move-outs reported in 2010 and 2009, respectively. During the past three years combined, the industrial sector posted 8.5 million square feet of net move-outs.
As industrial vacancies linger at nearly double the 10-year historical average, the negative effect on pricing continues to ripple throughout the market. Pricing within the sector continued to deteriorate, falling 1.9 percent on a quarter-over-quarter basis to an average asking rent of $0.52 per square foot per month during the fourth quarter of 2011. Increased availability over the last 12 months has caused average asking rents to fall 7.2 percent from $0.56 per square foot per month reported at the close of 2010.
Given current availability levels, more than 12.5 million square feet of positive absorption would be required to bring the vacancy rate to a pre-recession level of 6.5 percent; a scenario unlikely to prevail anytime soon. Stated otherwise, for every one percentage point decline in vacancy, approximately one million square feet of positive net absorption is required; the market has not experienced positive absorption since the fourth quarter of 2008.
Locally, demand for industrial product is expected to be impacted by a relatively weak demand profile partially sourced to the struggling construction sector.
Southern Nevada analysis and statistics compiled by Applied Analysis.
Brokers and developers needed a boost and got one this year. With increased activity, fewer closures and nothing new being built, the market began to heal this year with gradually dropping vacancy. Starting the year at 15.1 percent, positive net absorption helped to drop vacancy throughout the year to end at 14.6 percent (including sublease space). In short, the market seems to be improving slowly.
There were 32 deals completed in the fourth quarter totaling 1,404,217 square feet of gross absorption, increasing gross absorption to 5,071,078 square feet for the year. Average annual gross absorption during the good years of 2004-2008 was 5,312,194 square feet and average gross absorption for 2009-2010 was 3,449,281 square feet, so one can see how 2011 is viewed as a rebound. Net absorption for the quarter was a welcome 524,328 square feet, which was a large contributor to net absorption for the year of 941,133 square feet. Notable transactions for the quarter are Urban Outfitters build-to-suit (472,720 square feet), Zulily (expansion of 157,215 square feet), Replico (150,000 square feet), NOW Foods build-to-suit (130,000 square feet), Kassbohrer (115,140 square feet), Dash Top (41,033 square feet), Center for Spiritual Living (34,000 square feet) and Silver Eagle Relocation (29,750 square feet).
Although vacancy is decreasing, it is still a high 14.6 percent causing some owners to lure tenants with cheap rent to fill space. Sales were plentiful this year with buyers taking advantage of very low interest rates and inexpensive buildings. The goal of most sellers was not profit, but instead, how to get out and minimize the damage.
New Construction for the quarter was strong at 624,595 square feet due to the three build-to-suits. Though construction companies remain concerned about the lack of activity on the horizon for 2012.
Northern Nevada analysis and statistics compiled by NAI Alliance Reno.