Let the Games Begin!
NAIOP Southern Nevada’s Bus Tour Committee is pleased to present the 2016 “A Whole New Ball Game” Bus Tour. Coming off the heels of a successful bus tour in 2015, our chapter is getting back on the buses to tour the future of commercial real estate in Southern Nevada.
We are full steam ahead into this new phase of the development cycle where enterprising NAIOP developers are capitalizing on future growth prospects. Our developers are working closely with our chapter’s architects, engineers, contractors and brokers to realize market opportunities. As a result, our professionals are providing higher quality space with more features and benefits for their tenants and companies. These combined efforts play an important role in recruiting new businesses and jobs to Southern Nevada, therefore, supporting the sustainability of our economy.
We are extremely excited to present the 31 industrial, office and retail projects on this year’s tour. Each of them have been completed recently, are under construction or planned for future development. Our goal for this event is not only to showcase these exciting new developments for our members, but also to generate awareness about the viability of new development in the market. We sincerely thank the NAIOP Board of Directors, the Bus Tour Committee members and all of the NAIOP member sponsors and advertisers who make this event possible. Without your time, efforts and resources, we would not be able to put on such an important event.
Welcome to the NAIOP 2016 “A Whole New Ball Game” Bus Tour Event and thank you for your attendance as we celebrate the next chapter in Southern Nevada’s development. Please take this opportunity to a get a pulse on our market firsthand from our expert NAIOP tour guides. Spread the word there is real development activity in Las Vegas being met with real demand from occupiers of all types of commercial real estate.
NAIOP Southern Nevada wanted to ensure each property on this year’s Bus Tour got the attention it deserved. To do so, the properties are organized by submarkets.
The properties, as listed here, belong in the submarket where they are located. Please refer to pages 24 and 25 for the complete Bus Tour map and the accompanying list of properties.
Have a wonderful Bus Tour!
Double Net Lease: Tenant pays property taxes and insurance.
Full Service Gross: (FSG) – Landlord covers all base year expenses.
Gross Lease: A lease of property where the lessor is responsible for paying all property expenses.
Gross Rent Multiplier: The GRM is an easy rule of thumb to forecast value.
Modified Gross Leases: This is a lease in which the rent includes building expenses like a gross lease, but the landlord recaptures expense increases after the base year.
Sublease: A tenant leases some portion of a premises to another tenant, while remaining liable to the landlord for rent.
Triple Net Lease: (NNN) A net-net-net lease, where in addition to the stipulated rent, the lessee assumes payment of all operating expenses of the property and the landlord receives a net rent.
Formed in 1986, the NAIOP Southern Nevada chapter has grown dramatically since it’s inception as a socially oriented club to become the voice of commercial real estate development in Southern Nevada. Now with more than 400 members the chapter is known throughout the community for organizing special events such as the awards program, annual bus tour of office, retail and industrial projects, annual golf tournaments, monthly breakfast meetings featuring informative guest speakers and numerous education workshops and seminars. The chapter is also actively involved in government affairs at the local and state levels.
NAIOP Southern Nevada has received national recognition over the years with the Chapter Merit Awards for its periodical publication, NAIOP NOW, Spotlight Awards program, Educational programming, Membership programming, Government Affairs program, Outstanding Contribution by a Chapter President and Outstanding Contribution by a Chapter Executive.
“NAIOP, the Commercial Real Estate Development Association, is the leading organization for developers, owners and related professionals in office, industrial, retail and mixed-use real estate. NAIOP Southern Nevada provides unparalleled industry networking and education, and advocates for effective legislation and regulations on behalf of owners and developers of commercial real estate. NAIOP Southern Nevada advances responsible, sustainable development that creates jobs and benefits the Southern Nevada community and the economy in which our members work and live.”
NAIOP Southern Nevada is more than just a first-class commercial real estate development organization that connects members through educational events, award programs and government affairs efforts. The association is also filled with members that genuinely care for the Southern Nevada community and actively work to improve where they live and work. This year, NAIOP Southern Nevada hosted a number of events and the organization’s members volunteered at each to make help make them successful.
These events included the Vegas Youth Ambassadors Homeless Outreach Volunteer Event, the Candelighters Superhero 5K, the Hollingsworth Elementary School Supply Drive as well as a Habit for Humanity event wherein members helped build housing for the underserved. For more information on how to get involved in NAIOP Southern Nevada’s volunteer efforts, contact the organization directly or go to NAIOPNV.org/Community-Service
Central, Downtown/Central East Submarket
The central east submarket is located east of I-15, with Charleston Boulevard to the North and Tropicana Avenue to the South. With one major exception, it is largely comprised of older office projects. It currently has one of the highest vacancy rates at 23.6 percent. The submarket consists of approximately 6.6 million SF and had negative absorption in Q2 2016. Landlords are continuing to offer significant concessions and below market rents to attract tenants.
Hughes Center is the exception mentioned above and consists of approximately 1.4 million SF of Class A space. Hughes Center has seen some recent turnover of large tenants that have sought more affordably priced Class A office space in other submarkets. However, the center’s owner, Blackstone, has recently completed new leases with CoStar and Cosmopolitan.
As the top-down recovery continues, there will be an increase in leasing activity among the Class B and Class C properties that make up the bulk of the central east submarket, outside of the Hughes Center. This trend has already started with Rialto Capital’s project, the Park at 3900, which has increased occupancy by 15 percent in the last six months.
The Downtown Submarket has, over the last few years, experienced a dramatic increase in activity. This surge of renewed energy started with Zappos moving their headquarters to the former City Hall building. Additionally, investments by the Downtown Project have resulted in a greatly expanded number of restaurants, retail and entertainment outlets to serve the Downtown Submarket. Several prominent law firms such as Gordon & Rees and Fisher Phillips have recently relocated to the Bank of America Plaza.
Downtown is an interesting and exciting submarket. With the overall vacancy hovering around 16.7 percent, the leasing activity is expected to maintain its current velocity. With the Nevada Supreme Court building under construction and the Federal Justice Tower near completion, expect to see additional ancillary services move Downtown to service these sectors.
North Las Vegas Submarket
The North Las Vegas submarket is the second largest submarket in the region consisting of roughly 32 million SF, or 30 percent of the overall market and 50 percent of the distribution product type in Las Vegas. As of Q2 2016, vacancy is low at 4.3 percent and there is currently 1.75 million SF under construction and over 2.25 million SF of planned product.
The most active developers in North Las Vegas are Prologis, Van Trust, Dermody Properties and SunCap. These developers are building to meet a growing demand for larger facilities of 250,000 SF to 600,000 SF. New development is leasing while under construction and there is a robust pipeline of tenants for future development activity. Significant transactions in 2016 include: Bed Bath & Beyond for ±525,200 SF at Prologis I-15 Speedway Logistics Center, JLG International for ±215,320 SF at Prologis North 15 Freeway Distribution Center and Hyperloop Technologies for ±106,796 SF at Lone Mountain Corporate Center.
While large tenant activity takes the spotlight, leasing for all size ranges and product types in North Las Vegas is strong and supply of spaces under 200,000 SF is very limited. Landlords continue to raise rental rates while lowering concessions.
Investment sale activity has been limited due to a lack of properties available for purchase. The one sale of Dermody Properties’ newly constructed ±381,000 SF Logisticenter to IPT at a 5.5 percent cap rate proves there is a strong investor appetite for institutional quality investments.
There continues to be a slow uptick in land prices with steady activity from both user and developers. Pricing ranges from $3 to $6/SF depending upon the size, location, topography and whether or not utilities/offsite work is complete.
These are exciting times for the North Las Vegas submarket which is evolving. The area is on the radar for large regional requirements. Be sure to stay tuned for new tenant announcements.
The southeast office submarket consists of office buildings totaling ±5,362,416 SF, or 12 percent of the overall office market. The Class A market is predominately made up of the Green Valley Corporate Center (North & South) and Eastgate Plaza I & II. The ±585,000 SF of Class A space makes up 9 percent of the total Las Vegas Class A buildings, with Class B making up 15 percent (±2.5 million SF) and Class C at 11 percent (±2.2 million SF) of the Las Vegas overall office inventory.
While most markets steadily improve, this isn’t the case for the southeast submarket in 2016. Southeast led in negative absorption with ±34,000 SF vacated in Q2 2016, while the overall market saw ±180,000 SF of positive net absorption over the same period.
The average lease rate for the southeast submarket is $2.06/SF full service gross; accordingly, Class A is $2.65/SF, Class B is $2.10/SF and Class C is $1.74/SF. Class B and C rates are the second highest in the market, trailing only the Southwest Submarket. Concessions vary depending on the size and credit of the tenant in addition to the length of term.
Knoah Solutions Inc. leased ±27,000 SF at Stephanie Beltway Center, National Debt Relief leased ±11,400 SF at 3007 W. Horizon Ridge, Lawyers Title occupied ±8,000 SF in Green Valley Corporate Center and Signature Real Estate Group moved into ±6,000 SF at the Commerce on the Green.
The trend of average price per SF has been rising while the average cap rate has been declining with the economic recovery. However, the market has seen a recent increase in cap rates, as the FED adjusted interest rates in Q1 2016. With nine sales in the southeast submarket since January, ±183,000 SF has traded with an average of $156/SF.
ViewPointe Professional Center sold for $165/SF (±31,000 SF); 2811 W. Horizon Ridge sold for $354/SF (±18,000 SF); and 3041 W. Horizon Ridge sold for $228/SF (±24,000 SF).
In the southeast submarket there is no current construction underway, other than the new medical office building (±80,000 SF) located at Union Village next to the new Henderson Hospital. With Seven Hills Plaza D (±42,000 SF) and Cadence (±30,000 SF) in the planning phases, the southeast will fall behind the major developments over the next five years as the majority of new office development in the Las Vegas market will happen in the southwest, northwest and downtown submarkets.
As the office market continues its recovery, the southeast submarket will continue to see its premier properties continue to operate at high occupancy levels, with the older areas of the submarket seeing below market rents. The medical industry will be the main driver of new office development in the submarket nearest to the hospitals.
Consisting of more than 14 million SF, the Henderson industrial submarket has seen significant growth over the last 12 months with several speculative developments completed and under construction. In terms of overall vacancy (5.8 percent) and average lease rates ($0.65/SF NNN), the Henderson submarket looks to continue its positive trend. Net absorption YTD for 2016 in the submarket was 235,207 SF.
Recent lease comps for the market include the lease of ±44,051 SF to Maintenance Supply Headquarters at 880 Wigwam Parkway, a ±13,432 SF lease to Bachiero Event Services at 1051 Mary Crest Road and a ±12,000 SF lease with Orange Line Tool & Equipment Company also at 1051 Mary Crest Road. The largest recent lease comp in the Henderson submarket was to CoreMark International for ±232,826 SF, who relocated from the southwest submarket into a new speculative building that was under construction by Prologis. There have been very few deals above 25,000 SF in this submarket due to the lack of existing options.
As of Q2 2016, there are over 1.5 million SF of new speculative product planned and under construction in the Henderson submarket. The projects currently under construction include: Panattoni’s Henderson Freeways Crossing, a ±452,710 SF project consisting of two warehouse distribution buildings totaling ±363,450 SF and four freestanding buildings totaling ±89,260 SF, and Harsch Henderson Commerce Center IV totaling ±240,000 SF which is divisible down to ±16,124 SF. Also under construction is Panattoni’s ±482,300 SF cross dock building at South15 Airport Center.
With low vacancy, positive net absorption, increased lease rates and several speculative projects slated for completion by the end of 2016, the Henderson office submarket has rebounded from the recession and is projected to continue with positive growth for the next several years.
The airport office submarket consists of ±346 properties totaling ±6,314,715 SF, or 14.3 percent of the overall office market. The Class A market is predominately made up of Marnell Corporate Center (±341,558 SF) and Town Square (±476,469 SF), which is also approximately 12 percent of the entire Class A market for Las Vegas.
As the market steadily improves, so does the airport submarket with its limited supply of developable land. The largest amount of net absorption has been seen in Class B product (±93,786 SF) reducing the vacancy to 7.5 percent versus the 16.7 percent seen Valley-wide.
The average lease rate for the airport submarket is $2.03/SF full service gross; accordingly, Class A is $2.82, Class B is $1.93 and Class C is $1.72. Concessions vary depending on the size and credit of the tenant in addition to the length of term.
CenturyLink leased ±44,000 SF at Marnell Corporate Center, Machine Zone leased ±24,000 SF at Marnell Corporate Center, ResortCom leased ±24,000 SF at McCarran Center II, National Security and Building Services leased ±14,000 SF at 311 Warm Springs Road, Easy Street Realty leased ±7,000 SF at Venture Commerce Center and Calportland leased ±6,700 SF at Hughes Airport Center.
The trend of average price per SF has been rising while the average cap rate inversely declined since 2011. The average price per SF and cap rate were $73/SF and 9.7 percent in 2011, $89/SF and 8.2 percent in 2012, $163/SF and 7.6 percent in 2013, $118/SF and 7.7 percent in 2014 and $182/SF and 7.6 percent in Q2 2015. However, 2016 YTD has seen a decrease in overall average price/SF ($93/SF and 8.1 percent).
Marnell Corporate Center VI (±110,962 SF), is currently in escrow, Sunset Pilot Plaza sold for $202/SF (±98,865 SF), View Pointe Professional Office Center sold for $150/SF (±34,245 SF), Eastern Wigwam Professional Center sold for $131/SF (±30,000 SF) and Palm Court sold for $95/SF (±9,588 SF) .
Due to limited land supply, there is no planned construction for the airport submarket other than Marnell Properties developing the second phase of Marnell Airport Center.
As the office market continues its gradual improvement, the core fundamentals of real estate will continue to drive the market: location, construction type, design, pricing, amenities, etc. In general, well designed and well positioned assets governed by robust landlords will benefit from their product type and method of operation, while other properties remain vacant and obsolete lacking those core factors.
With ±400 buildings totaling approximately 14 million SF, the airport industrial submarket is the third largest submarket in the Las Vegas Valley behind the North Las Vegas and southwest submarkets. As of Q2 2016, the vacancy rate was around 9 percent, but that rate could be dropped a couple of percentage points if the slow-moving flex spaces discussed below were separated out.
The airport submarket is a tale of two cities: spaces with 5 to 10 percent office that have been leasing consistently, and heavy-office flex spaces that have struggled to find tenants now that businesses operate leaner and/or in modern configurations requiring less space per employee. Asking rates for light distribution and mid-bay spaces range from $0.60 to $0.70/SF. Flex spaces are still asking a premium from $0.05 to $0.10/SF and sometimes much more, but some brokers believe these spaces should actually be discounted due to the shift in office space trends. Notable lease transactions include: Impact Sand and Gravel leased a challenging ±17,000 SF space, IGT signed a 10-year lease of ±26,000 SF, Carpets-N-More completed a five year lease of ±28,144 SF, Interblock took down a ±40,000 SF hard-to-lease half-office space and Scientific Games inked a five year deal for ±76,000 SF.
There is a limited supply of buildings for sale. Asking prices are fairly consistent around $150/SF, but actual sales comps range from $80-155/SF, with the bulk of sale prices recorded at $90-120/SF. As for investment sales, Harsch Investment Properties purchased the ±57,838 SF Patrick Airport Center at a 7.5 percent cap rate in Q2, and two more notable projects are in negotiations for 5 to 6 percent cap rates.
The airport submarket is essentially built out because sizable parcels no longer exist for large-scale development. Sunset Landing is currently under construction with estimated shell delivery in Q3. Offering two 27,000 SF buildings with divisibility to ±4,500 SF, they are asking $145/SF for shell spaces.
The airport submarket will remain a prime location for image oriented tenants desiring convenient locations for their employees, as well as access to the Las Vegas Strip, McCarran International Airport and the UPS/USPS facilities located nearby.
The southwest office submarket, located south of Tropicana and west of the I-15, is the third largest submarket and is comprised of 159 competitive office buildings totaling more than 4.8 million square feet. The first two quarters of 2016 net absorption in the southwest submarket was 57,864 SF. The vacancy rate for Q2 2016 was about 14 percent, the second lowest vacancy in the market, and is about 520 basis points lower than the overall market vacancy. The southwest office submarket, located south of Tropicana and west of the I-15, is the third largest submarket and is comprised of 159 competitive office buildings totaling more than 4.8 million square feet. The first two quarters of 2016 net absorption in the southwest submarket was 57,864 SF. The vacancy rate for Q2 2016 was about 14 percent, the second lowest vacancy in the market, and is about 520 basis points lower than the overall market vacancy.
Leasing activity in the southwest consistently out paces the rest of the market, and year-to-date 2016 is no exception. Through the first half of the year, the southwest leads the market with 324,014 SF of leasing activity which is approximately 28 percent of the total market. As a result of relatively strong demand and an increasing shortage of available space, the southwest submarket typically has some of the highest lease rates in Las Vegas. As of Q2 2016 the weighted average asking lease rate for class A buildings was $2.68/SF/month/FSG, and class B buildings was $2.24/SF/month/full service gross. Some of the more recent lease transactions include: B of I Bank (24,178 SF), Ryland Homes (18,273 SF) at The Gramercy, a mixed use office, retail and multifamily project and Boyd Gaming (36,216 SF) at the Rainbow Sunset Pavilion.
The largest sales transaction in Las Vegas over the past year, occurred in the southwest submarket and was the $75 million sale of the ±610,410 SF IGT corporate campus. Panattoni Development purchased the project in late 2015 and IGT leased back ±231,530 SF of office.
Most of the land in the southwest submarket that is available for development is concentrated along the Beltway. Over the last several years a number of corporate users have been active in buying up parcels of land and constructing corporate campus projects similar to IGT, Scientific Games and Ainsworth Gaming. Most recently Credit One Financial acquired ±25 acres on Maule Avenue and Cimarron for a corporate headquarters campus for $20.8 million.
With a few exceptions new speculative construction marketwide has been relatively nonexistent since 2009. Several developers have control of large parcels of land for future office development including; WGH Partners (The Gramercy), Thomas and Mack (Las Vegas Digital Exchange), EJM (The Arroyo), Sansone Companies (Sansone 215 Rainbow) and Panattoni Development.
The southwest submarket has played a critical role in the Las Vegas office market recovery. Since Q1 2012 the southwest has accounted for about 18 percent of the total net absorption in the market, and the vacancy rate has decreased from about 27 percent to the current vacancy of 14 percent. The strong demand for office space in the southwest has been driven, primarily, by the availability of large blocks of land, accessibility to the resort corridor, McCarran International Airport and to the master planned communities of Summerlin and Green Valley. The southwest will likely continue to attract clients locating corporate campuses, and will continue to be among the strongest demand for office space in the Las Vegas market.
The southwest industrial submarket is comprised of approximately 38.1 million SF and is situated west of I-15 and south of Sahara Avenue. Current vacancy in the submarket is 4.8 percent, an increase from 4.5 percent in Q1 2016, due primarily to the completion of approximately 700,000 SF in Q2 2016.
Lease rates in the submarket have seen steady and sustained increase, particularly for incubator, flex and midbay type product as there is little to no like-kind product being added to the supply. Much of the new space being constructed in the submarket is larger distribution type product, which has resulted in recent rate stabilization for that product type. Recent significant deals include: ±133K SF lease to Destinations By Design with a 75 month term and $0.57/SF starting rate, a ±84K SF lease to Amazon with a 60 month term and $0.54/SF starting rate, the Freeman Audio Visual 137,000 SF (expansion) with an 84 month term and $0.545/SF starting rate and a ±102,000 SF lease to XPert Exhibits with a 62 month term and a $0.57/SF starting rate.
There is little product for sale in the Southwest which has contributed to an increase in value due to healthy demand for product for sale. In June 2016, Cameron Business Center, a ±160,000 SF multi-tenant midbay, 20-year old project, sold for just over a 5 percent cap rate at $112/SF. Parc Post pre-sold a ±24,000 SF and a ±34,000 SF building prior to construction completion. Land prices have escalated substantially and there are very few industrial zoned land opportunities over five contiguous acres. Recent land sales include the Freeman purchase of ±8.11 acres on Sunset Road for $14/SF and Prologis’ purchase of ±9.96 acres on Sunset Road for $13/SF (the Prologis Beltway Distribution Center site).
Recently completed projects include: Parc Post, a ±160,000 SF four-building project offering the two pre-sold buildings and ±106,000 SF midbay space for lease, the ±416,000 SF Jones Corporate Park developed by Panattoni, divisible to ±50,000 SF and Blue Diamond Business Center #3, a ±172,000 SF cross dock for lease. Under construction with completion expected in Q4 2016 is the ±211,000 SF Prologis Beltway Distribution Center. Planned projects include Majestic Realty’s ±295,000 SF Beltway Business Park #9, divisible to ±25,000 SF and the ±430,000 SF Blue Diamond Business Center #6, divisible to ±100,000 SF.
The southwest submarket has historically been the highest rent district and one of the fastest absorbing submarkets in the Las Vegas Valley. The submarket should continue seeing healthy absorption with rents more stable in the distribution category, given the added supply in this product type, as well as some additional pricing escalation in incubator, flex, midbay and for sale product given the sustained demand and limited supply in those categories.
The northwest submarket is encompassed by the I-215 Beltway to the west, east along Desert Inn Road to Durango Road, north to Summerlin Parkway, east to Decatur Road and finally north where it rejoins the I-215 beltway. As of Q2 2016, the market consists of approximately 6.05 million SF of space, which represents approximately 16 percent of the total office space tracked in the Las Vegas Valley. Approximately 19.7 percent, or just less than 1.2 million SF, is vacant.
Absorption since the last year’s bus tour continues to head in the right direction with three of the four quarters showing positive absorption, with new occupancy totaling ±107,300 SF. As of Q2, there is ±188,000 SF under construction, with the majority in Tivoli Village – Phase II and Centennial Hills Center – Phase I.
Leasing rates in the northwest currently average $2.10/SF full service gross and rates have stayed relatively flat since last year.
The outlook for the remainder of 2016 and 2017 will be continued growth for the northwest submarket. With the economy recovering, the majority of residential and commercial development in the Las Vegas Valley will be in the northwest. This is a submarket that has performed well over the years and will continue to perform well. It is expected that rents in this submarket will continue to trend up as demand continues and supply goes down.
Tivoli Village is a 1.4 million SF mixed-use property with Phase II currently expected to be delivered in Q4 2016. The project currently has 51 total office and retail tenants, including 13 dining options.
One Summerlin is the newest Class A office building to be completed in Las Vegas. The eight floor building sits at the center of Downtown Summerlin, providing exceptional amenities and views for tenants. The property has done well in its lease up and Phase II could break ground as soon as late Q4 2016 or early 2017.