The Las Vegas office market vacancy rate fell to 24.8 percent in the third quarter of 2014. Compared to the prior quarter, vacancies fell 0.4 percentage points. Meanwhile, the vacancy rate is down 0.7 percentage points compared to a year ago. While the office market vacancy rate remains significantly higher than its industrial and retail counterparts, it has now reported year-over-year declines for four consecutive quarters.
During the third quarter, there were no notable office completions in the Las Vegas area, and there have been zero completions for two consecutive quarters. As a result, inventory has remained flat at 52.7 million square feet since the end of the first quarter of the calendar year. The only notable office completion this year included the 46,000-square-foot Robert T. Eglet Advocacy Center in Downtown Las Vegas.
The office sector reported approximately 170,400 square feet of positive net absorption in the third quarter of 2014, bringing the year-to-date total to 262,500 square feet of net move-ins. Class B office space reported the strongest performance during the quarter with roughly 151,500 square feet of positive net absorption.
Construction activity remained flat at 792,700 square feet in the third quarter as six office projects remain under development. Current developments include the third phase of Corporate Center at the Curve (45,700 square feet), the second phase of Tivoli Village at Queensridge (68,000 square feet), Federal Justice Tower (129,000 square feet), Centennial Hills Center (150,000 square feet), the Gramercy (200,000 square feet) and Downtown Summerlin (200,000 square feet). A number of projects are expected to reach completion by the end of the calendar year.
The market continued to improve in the third quarter with positive net absorption and the overall vacancy rate declining from 17.4 percent to 16.87 percent. The net absorption for the entire market was a respectable 39,121 square feet. For a market of Reno’s size, an annual net absorption above 100,000 square feet would be considered healthy.
There are two dominant themes in the office market this year. The first is the flight to quality in Downtown and Meadowood. Clearly, these two markets have the lion’s share of the true Class A office space in Reno. The Class A vacancy in the Downtown submarket is 11.1 percent and in the Meadowood submarket it is 11.6 percent. In normal times, this would indicate to developers to start planning for new buildings. Unfortunately, rents are not high enough to warrant new development. If there are new buildings constructed, they would most likely be along the Kietzke Lane corridor.
The second major trend in the market is the return of large blocks of office space to the market in South Meadows. In the last year, Alere Medical, University of Phoenix, WMS Gaming, Inter Tel, and NJVC have put large blocks of space back on the market. It is anticipated that Morrison University will return space to the market as a result of the recent closure of their south Reno campus. Many of these were primary businesses that brought dollars into the community. This has created surplus of large space in the South Meadows submarket and put a damper on rising lease rates.
Southern Nevada analysis and statistics compiled by Applied Analysis, Northern Nevada analysis and statistics compiled by Colliers Reno