The overall Northern Nevada economy continues to improve through the second quarter. The overall vacancy in the Reno/Sparks area decreased to 12.45 percent from the previous quarter of 13.12 percent. There was a total gross absorption of 219,414 square feet during the quarter, with a net absorption of 80,792 square feet. The anchor vacancy rate is 12.78 percent and the line shop space vacancy rate is 11.98 percent.
It was a strong quarter for retail investment sales. The most notable transactions were Smithridge Plaza, a 1,045,575 square foot anchored community center that sold for $30.8 million. The second largest sale was The Commons, a 151,877 square foot anchored community center that sold for $28.9 million.
This quarter, forty-four tenants moved into spaces consisting of 207,928 square feet. The two largest tenants moving into space this quarter were Sprouts Farmers Market and Marshalls Home Goods, both opened at Sparks Galleria. There were fifteen tenants moving out of space totaling 138,622 square feet.
Looking to the future, expect to see retail gross absorption remain at subdued levels as new construction will be limited until more existing space is absorbed and lease rates increase to justify new construction. However, limited new development is expected as select retailers construct new buildings specific to their needs or in high residential growth areas.
In Q2 2018, the Las Vegas Valley retail market experienced both expansion and stabilization while seeing less closures from major retailers. Increased demand has reduced current vacancies to 6.5 percent, 30 basis points lower than last quarter.
The average lease rate is $1.48 per square foot, triple net. The current average sale price is $208 per square foot, while the average cap rate is 6.6 percent. In Q2 2018, 1.7 million square feet has traded, down ±0.7 million square feet from Q1 2018. There were 63,000 square feet of projects delivered in Q2 2018 with 792,000 square feet still under construction and an additional 450,000 square feet planned for completion by end 2018.
Although retail still faces headwinds from e-commerce competition, the publicly traded retailers reported that, subsequent to Q2 2018, they have started to hold some ground on internet competition. In Las Vegas, there are many positive developments, including population and personal income growth, municipality funded construction (Raiders Stadium, Las Vegas Convention Center, Project Neon, Clark County School District among others), as well as new resort (re)development. The sum total of these factors is positive for retailers and the Las Vegas economy in general.