The office sector continues to remain fragile with further reductions in pricing amid relatively little change in the vacancy rate. The vacancy rate remained flat from the prior quarter at 25.2 percent (13.1 million square feet) by the close of the first quarter of 2012. On a year-over-year basis, the vacancy rate has increased 1.5 percentage points.
Despite one in four square feet sitting vacant across the valley, new office space entered the market during the quarter, pushing total inventory upward to nearly 52.1 million square feet. The opening of a new city hall for Las Vegas in the downtown submarket added 310,000 square feet to overall inventory. The project represents one of few remaining buildings to move forward with development during the past several years.
A modest 216,900 square feet throughout four projects remain actively under construction across the valley. Of the 2.5 million square feet that remain in various stages of planning, nearly 800,000 square feet is sourced to previously stalled or delayed projects, much of which will likely remain that way until market conditions improve.
Pricing continues to adjust downward as vacancies remain elevated within a limited-demand market. The market reported a 1.6 percent price decline in average asking rents compared to the previous quarter (Q4 2011). Valley-wide average rents fell to $1.94 per square foot per month, a downward adjustment of 18.5 percent from the pre-recession peak of $2.38 per square foot. Effective rents remain well below these price points after accounting for concessions offered by landlords.
Material improvements in the Las Vegas office market require a longer-run view. While reaching back to peak performances is not expected in the short-term horizon, opportunistic acquisitions will continue to take place that consider an extended recovery timeline.
The general theme of slow and steady, but improving, keeps on being the redundant story line in the Northern Nevada Office Market. While the office market is certainly not catching the world on fire, it is making strides toward a healthier overall environment. In the 1st Quarter, the market has seen a bit of a slowdown in true “in-bound” deals, but have seen a pick-up in local companies relocating and expanding within the market place. Companies such as VGT, Downey Brand LLP, AMEC-Mactec, Davita, and Renown, have all expanded within the marketplace. New companies include IMortgage, California Transplant & Donor Network and Gordon Silver Attorney’s and Counselors at Law. The level of occupancy does not call for any immediate product to be built, but certain submarkets are trending toward single digit vacancy in the Class A category, so developers will eventually start developing strategies on what’s next to come.
Ending 2011 with a decreasing overall vacancy rate of 17.36%, the office market continued to improve in 1Q12 with a total gross absorption of 100,582 square feet, netting positive absorption of 57,731 square feet and a reduction in vacancy to 16.62%. As in recent past quarters, the market continues to see a flight to quality. The vacancy rates in the Downtown and Meadowood Submarkets continue to diminish, especially in Class A product. Vacancy rates in the top 3 markets are as follows; Meadowood at 17.11%, Downtown at 15.23% and South Meadows at 22.94%.
While there is continued optimism in the direction of the Northern Nevada Office Market, it is still based on incremental measurements. The market will continue to bolster itself so long as there is growth in the macro economy, hinged on growth in GDP, consumer confidence, and stabilization in national housing.
Southern Nevada analysis and statistics compiled by Applied Analysis, Northern Nevada analysis and statistics compiled by NAI Alliance Reno