The Las Vegas industrial market vacancy rate stood at 10.9 percent by the end of the second quarter of 2014. The latest period represents a decline of 0.9 percentage points when compared to the prior quarter. Compared to a year ago (Q2 2013), industrial vacancies in the Valley have fallen an even more substantial 3.4 percentage points. The vacancy rate is now down 6.2 percentage points from the high of 17.1 percent.
During the second quarter, two industrial projects totaling 222,400 square feet completed construction in Las Vegas. Tapia Brothers completed a 39,500-square-foot expansion to its facility in North Las Vegas and Nicholas & Company completed its 182,900-square-foot distribution center located in the northeast submarket.
Approximately 1.1 million square feet of net absorption was reported during the latest period, bringing the year-to-date total to 2.4 million square feet of net move-ins. In the past four quarters, the market has witnessed roughly 4.5 million square feet of positive net absorption.
Construction activity fell slightly to 1.2 million square feet by the end of the second quarter. Three projects continued to move forward, including the Konami Gaming expansion (193,400 square feet), the TJ Maxx expansion (400,000 square feet) and Switch MegaNAP 9 (525,000 square feet). In addition, the 74,100-square-foot distribution facility for Chef’s Warehouse also broke ground during the quarter in the southwest submarket. While the bulk of industrial construction activity continues to be build-to-suit projects, speculative projects will likely pick up as companies continue to report difficulty finding the large spaces they need in existing buildings.
Buildings continued to fill throughout the second quarter leading to a drop in the vacancy rate to 7.92 percent. The rate is even lower at 7.73 percent when excluding sublease space. These numbers are less than what would be considered sufficient to meet demand and made up mostly of Class B product. Only two Class A spaces greater than 300,000 square feet are available.
There were 32 transactions total for the quarter with an average deal size of 58,036 square feet. While 32 is about normal, the average deal size was elevated due to two big deals. Compared to prior quarters, small spaces less than 20,000 square feet and large spaces over 100,000 square feet were most active. Class A vacancy is down a full 7 percent, Class B vacancy increased and Class C remained the same. Distribution space vacancy dropped by 1 and a half percent.
Gross absorption was an impressive 1,857,165 square feet driven by two large transactions, a 707,010 square feet build-to-suit for Zulily and Chewy.com taking the previously occupied 303,870 square feet Toys-R-Us space. This is a strong indicator that internet fulfillment continues to be a valid driver of activity in the area. Net absorption for the quarter was a healthy 1,423,893 square feet.
Rental rates continue to increase for bulk distribution space and the area may see more developers announce construction starts. There is a solid 1,040,000 of speculative construction planned in addition to Dermody’s 624,000 under construction. There is speculation that over 5 million square feet will be under construction by year end spurred by several different projects.