Las Vegas Valley spec office vacancy rates during Q2, 2015 ranged from 16.3 percent for Class C space to 32.1 percent for Class A. The overall vacancy rate was 21.6 percent, a decline from 21.7 percent recorded in Q1, 2015. Compared to Q2, 2014, the vacancy rate is down 1.1 points from 22.7 percent. Q2’s decline in vacancy rate makes 6 quarters with an improving vacancy rate in 7 quarters. Expect the Valley’s office market to continue to improve as the region’s economy and job markets do the same, albeit slowly.
There were no spec office completions in Q2. In the last 21 quarters, only eight quarters had new space come to market. However, six of these eight quarters have occurred in the most recent eight quarters. On a year-over-year basis, completions stand at 392,900 square feet. For Q2, the inventory remained 43.0 million square feet.
Net absorption in the office sector was only slightly positive for the quarter at 29,900 square feet. However, on a year-over-year basis, net absorption was 754,600 square feet. By product, Class C led the way with 360,300 square feet. Class A posted 240,400 square feet in gains, followed by medical with just over 143,600 square feet. Class B brought up the rear, posting year-over-year absorption of just 10,200 square feet.
Office space under construction in Q2 increased to 265,000 square feet. Three projects comprised this space: Phase 2 of Tivoli Village in the Northwest submarket (Class A-68,000 square feet), the Union Village Medical office building in Henderson (Class A-150,000 square feet) and the Corona del Mar Corporate Center in the Southwest submarket (Class B-47,000 square feet). Lastly, there were 283,600 square feet of planned office space at the end of the second quarter.
The health of the Northern Nevada office market was driven by the healthcare industry, most notably, Renown Health and Arrohealth. These two companies accounted for over 110,000 square feet of gross absorption in facilities spanning from north to south. Although 887 Trademark was vacated due to consolidations between WMS Gaming, the quarter still ended on a positive note with just over 70,000 square feet of net absorption. This brought the overall vacancy to a near decade low mark resulting in an overall 14.7 percent vacancy rate.
The market continues to see record visits and interest from out of area companies. EDAWN reports nearly 3,500 assisted jobs through fiscal year 2015, approximately 1,000 positive from the year prior. The Washoe County unemployment rate stands at approximately 6.4 percent and the average wage of new jobs created is increasing. These data points, coupled with entrepreneurial growth, provide the economic factors used to determine the continued optimistic outlook for the office market.
As demand breeds demand, the diversification of the local business economy continues and these companies demand Class A office space. The Kietzke Lane corridor is in the process of becoming a master planned residential and business point of convergence. Sought after land opportunities providing freeway visibility are beginning to be acquired on a speculative and build-to-suit basis. And, after Renown’s expansion into the heart of Downtown Reno, this submarket is down to only two 10,000+ contiguous square foot vacancies. Reno may begin to see Class A construction once again as the area continues to see those leases climb beyond $1.50/month on a net basis.
Southern Nevada analysis and statistics compiled by RCG Economics, Northern Nevada analysis provided by Dickson Commercial Group.