Las Vegas Valley office vacancy rates during the first quarter of 2015 ranged from 16.5 percent for Class C space to 29.3 percent for Class A space. The overall vacancy rate was 21.7 percent, a slight rise above the 21.3 percent recorded in quarter four of 2014. Q1’s rise equates to the first increase in vacancy rate in 6 quarters.
Completions for Q1 were 212,868 square feet, in two projects. The completed projects were: the Class A One Summerlin building (197,080 square feet) in the Northwest submarket and two new buildings in the Class C Pecos Spring Business Park (15,788 square feet) in the Airport submarket.
Net absorption was only slightly negative for the quarter at -12,300 square feet. New completions pushed absorption for the quarter into negative territory. On a year-over-year basis, net absorption just broke 1 million square feet. By product, Class C led the way with 544,000 square feet. Class A posted 490,000 square feet in gains, followed by Medical with just over 112,000 square feet. The Class B is the only office product that posted a year-over-year decline, with -136,000 square feet.
Space under construction in Q1 dropped to 218,000 square feet. Two projects comprised this space: Phase 2 of Tivoli Village in the Northwest submarket (Class A-68,000 square feet) and the Union Village Medical office building in Henderson (Class-A 150,000 square feet), a part of a new mixed use development that includes the 142-bed Henderson Hospital as the anchor. Finally, there 158,565 square feet of planned office space in the market at the end of the first quarter.
The good news for the area is the diversification of the Northern Nevada economy that continues. Although a slight uptick in total vacancy to 15.78 percent, it is not due to a lack of inbound activity and organic growth amongst tenants in the high tech research, medical technology and services, manufacturing and IT applications. Companies such as Koch Business Solutions, Immy, Inc and Nutrient Foods carry on the region’s augmented popularity and support for growth in sectors that require substantial corporate investment and provide an escalating average wage. One example, Grand Rounds, opened a 12,000 square foot office in South Reno, claiming the largest new office occupier to the market for the quarter and year to date.
Some not so good news for the area is the withdrawal of higher education institutions, such as University of Phoenix and Morrison University, leaving substantial vacancies in the market ranging from 15,000 to 30,000 square feet. Although created by a combination of direct and sublease space availability, either way analyzed, it’s a negative absorption factor.
The current office market environment provides opportunity. Prescribed on current activity, Northern Nevadans can expect to see additional large users land in Downtown, Meadowood and South Reno. With that said, the area will gain the lost absorption back from Q1 and have a good chance to dip below 15 percent total vacancy by the end of Q2.
Southern Nevada analysis and statistics compiled by RCG Economics, Northern Nevada analysis provided by Dickson Commercial Group, Q1 statistics were not available for Northern Nevada.