The Northern Nevada economy continues to improve through the third quarter. The overall vacancy in the Reno/Sparks area decreased to 11.9 percent from the previous quarter of 12.45 percent. There was a total gross absorption of 148,937 square feet during the quarter, with a net absorption of 74,456 square feet.
The most notable sale transactions this quarter included Caughlin Ranch Shopping Center, a 113,376 square foot anchored neighborhood center that sold for $18 million, Virginia Street Plaza, a 10,226 square foot strip center that sold for $3.8 millio and Northtowne Plaza, a 30,187 square foot former Ross building that sold for $2,350,000.
This quarter thirty-nine tenants moved into spaces consisting of 145,937 square feet. The two largest tenants moving into space this quarter were Tractor Supply Co with 37,105 square feet and Harbor Freight Tools with 16,016 square feet. There were thirty-six tenants moving out of space totaling 72,662 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. There has been limited new development as select retailers construct new buildings specific to their needs or in high residential growth areas. An increasing rate of net absorption is expected as vacant space continues to be absorbed and the number of tenants vacating slows down.
In the third quarter of 2018, the Las Vegas retail market experienced two different trends. The first is having an excellent construction pipeline with over $15 billion of planned and active construction projects, and tourism at current record rates (over 42 million annual visitors). The second trend is that e-commerce competition continued to redefine leasable square footage for larger footprint retail spaces. A number of retailers filed for bankruptcy which saw a reduction in locations or a complete exit from the market in 2018. However, pad developments that include quick service restaurants (QSR) and national tenants such as Starbucks are selling at significant cap rates of 4.5 percent.
The Las Vegas retail market consists of 112.7 million square feet. The current vacancy rate is 6.7 percent which is 20 basis point higher than last quarter.
The average lease rates are $1.48 per square foot, triple net. The current average sale price is $263 per square foot with average cap rate of 7.2 percent. In Q3 2018, 2.2 million square feet traded, 0.5 million more than Q2 2018. In Q3 2018, 86,000 square feet of developments were delivered, 450,000 square feet was scheduled for completion in 2018 and 900,000 square feet is still under construction or planned.
The Las Vegas retail sector has been directly connected to the health of tourism, therefore; the current economy creates positive developments. The total amount of developments related to resort/gaming and government, ± $15 billion, provides a testament to the health of the Las Vegas economy.