Colliers International – Las Vegas releases First Quarter Reports
Las Vegas – After a very impressive 2015, all eyes were on Southern Nevada’s industrial market for the beginning of 2016. It did not disappoint. First quarter performance saw the industrial vacancy rate at 5.6 percent, 0.1 point higher than at the end of 2015, due primarily to a new speculative industrial building that was recently completed. Net absorption in the first quarter was 900,732 square feet, higher than one year ago, and the asking rental rate increased to $0.65 per square foot on a NNN basis.
“We anticipate that the demand will hold steady for the industrial market in 2016,” said John Stater, the research manager of Colliers International’s Las Vegas office. “Asking rates are estimated to continue to increase, especially in the light distribution and light industrial sectors, and proposed development will likely diversify.”
Aside from the industrial market, which added more than 1 million square feet of new product to its inventory in the first quarter, Southern Nevada’s multifamily market is also in a heavy expansion phase. Over 2,000 units of multifamily were completed this quarter, and another 1,600 units slated for completion during 2016. This is the largest expansion of the multifamily market in more than 5 years, and it has also driven vacancy up to 4.9 percent. As in the industrial market, this minor increase in vacancy has not impacted rent, with the average asking rent for Southern Nevada multifamily increasing to $925 in the first quarter of 2016.
Southern Nevada’s hospitality market, the engine of the Valley’s growth, continued to grow and diversify in 2016. Visitor volume is on par with 2015, and gaming revenue continued to decrease despite increased visitor spending. Since 2014, more than 3,000 rooms have been removed from inventory, primarily in Downtown, the “Strip,” and in the Resort Corridor. This is proving to be beneficial to operators in those submarkets because it is increasing room occupancy. This, in turn, may stimulate future “Strip” development, not only at Genting Group’s Resorts World Las Vegas, but also at Wynn Resorts, which recently announced a planned 1,000 room expansion projected to open in 2020. Non-gaming/hotel expansion also continues on the “Strip”, with the recent completion and opening of the T-Mobile Arena.
“2016 will see some inventory growth, with more possibly on the way in 2017,” said Mike Mixer, executive vice president of Colliers International’s Las Vegas office. “However, in the meantime expect the existing resorts to reap the benefits.”
Southern Nevada’s office market recovery was a long time coming and appears to have finally taken root. The past two years have seen over 2 million square feet of net absorption, bringing vacancy down from almost 20 percent to 16.7 percent. 2016 will not be without inventory expansion, as 325,000 square feet of new office space is now under construction. Much of this is pre-leased; therefore the impact should be minimal. This signals another strong year of net absorption, more than likely in the 1 million square foot range. Further, vacancy rates could fall to 15 percent, which would count as normalized vacancy given the altered expectations of the post-Great Recession era.
The recovery of Southern Nevada’s medical office market after the Great Recession has been rough and unstable. In 2015, it looked as though, despite two weak quarters, the recovery was picking up steam. After three weak quarters in a row, however, the data tends to point to more of the same – two steps forward, one step back. The professional office market followed a similar trajectory, and now appears to be in a strong recovery. Perhaps there is a possibility that the medical office market will follow suit. There are also two significant headwinds – competition from other types of commercial real estate, and market distortions created by the ACA. We remain optimistic that higher spending on healthcare is not entirely the result of increases in prices and deductibles, and healthcare employment growth will translate into more demand for medical office space over the remainder of 2016.
With five big box leases in the first quarter of 2016, one might be tempted to credit the quarter’s strong performance solely to large retailers. Those five new big box tenants added up to 324,382 square feet, which is impressive, however, it is offset by 227,411 square feet of newly vacated big box space in the Valley. This means that the lion’s share of net absorption, 66 percent was due to expansion by smaller retailers. This makes Southern Nevada’s current retail expansion widespread and hopefully, sustainable.
After analyzing the data from the past four quarters, it shows that Southern Nevada’s economy should continue to grow through 2016. Economic growth may slow due to national and international headwinds, but a local recession is unlikely. That means that the market will likely continue its expansion in industrial and multifamily markets, and continue its recovery in other areas. As recovery continues, it should stimulate more development – with light industrial space the most likely segment to see renewed development in the next year.
The full first quarterly report of 2016 can be downloaded at: http://www.colliers.com/en-us/lasvegas/insights/marketnews/lvqreport#.Vx5iLqODFBc.
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