In the third quarter of 2014, the Las Vegas industrial market vacancy rate reached single digits for the first time since the fourth quarter of 2008. The rate fell to 9.3 percent during the period, which is down 0.8 percentage points from the prior quarter (Q2 2014). Compared to a year ago, industrial vacancies have declined 3.4 percentage points. The Las Vegas industrial market has now reported year-over-year declines in vacancy rate for 10 consecutive quarters.
With no notable industrial completions, inventory remained flat at 107.6 million square feet. In the past year, roughly 654,000 square feet has been added to the market, including FedEx at South 15 Airport Center (296,000 square feet), a distribution facility for Nicholas & Company (182,900 square feet) and VadaTech (70,000 square feet).
The industrial market reported 822,700 square feet of positive net absorption in the latest period, bringing the year-to-date total to 3.7 million square feet of net move-ins.
Construction activity increased to 1.8 million square feet in the third quarter. Development continued to move forward on the Chef’s Warehouse distribution facility (74,100 square feet), Konami Gaming (193,400 square feet), TJ Maxx (400,000 square feet) and Switch SuperNAP 9 (575,000 square feet). In addition, MEC Contractors is building a 51,500-square-foot facility. Meanwhile, Thatcher Company of Nevada is building a 53,700-square-foot facility in Henderson, while Prologis broke ground on its 464,200-square-foot distribution center in North Las Vegas. The project is the first large speculative industrial development to start since prior to the recession.
Northern Nevada won the beauty contest amongst five states to house the Tesla/Panasonic battery giga-factory. The first phase of the project will be located on 500 acres and will consist of a 5 million square-foot building with an estimated investment of $5 billion. It will be the largest industrial building in the country. This deal has the potential to increase regional GDP by 26 percent. The number of industrial deals for the quarter totaled 49 and gross square footage leased or sold for the quarter was a record-breaking 2,672,301 square feet. Helped by leases within two large new buildings of 606,000 square feet and 624,000 square feet, the average deal size was a very large 54,537 square feet.
Net absorption was positive but not record-breaking due to a number of large spaces returning to the market. Tenants have vacated buildings for new spaces adding close to 1.26 million square feet of available space. These and other givebacks dampened the strong gross absorption number resulting in a net absorption for the quarter of 770,614 square feet. Due to the addition of new construction and the resulting large vacancies, the vacancy rate rose from 7.9 percent to 8.4 percent. Current activity is strong enough to overcome any worries regarding the increase in vacancy.
The Tesla announcement has caused Northern Nevada to be in the sights of out of area users, investors and developers. The need for increased housing will spur further industrial activity from the construction sector.