The third quarter of 2019 was one of the strongest quarters for office space in recent history. A healthy 130,000 square feet of net absorption was recorded, with many large leases in the Downtown and Meadowood Submarkets. Vacancy decreased to 10.5 percent. Current office stats were strong enough to support new construction, which is why it was no surprise that Rancharrah finally broke ground with strong pre-leasing activity. The average asking full service rents increased by a nickel to $1.76 per square foot on a monthly basis.
Unlike the previous quarter, when most of the action was in the South Meadows Submarket, the third quarter saw most of its activity in Downtown and Meadowood. Early in the fourth quarter of 2019, many large leases are scheduled to be signed in the Downtown submarket. While larger co-working companies have not yet hit our market, we have seen the growth of smaller outfits such as Regus.
There were fewer significant office sales this quarter than in previous quarters. A number of significant transactions are expected to round out the year, including a few large sales that will hopefully remove several larger blocks of obsolete office space from the market. In some cases, the new owners have major remodel plans while others are changing the use, in one instance to mini storage, to off-load the property.
Almost 460,000 square feet of new office space is scheduled for completion over the next four quarters. Pre-leasing is strong in these projects, and they may just prove that southern Nevada’s demand problem was really a supply problem, with a lack of desirable office space on the market hampering growth. If this does not prove to be the case, expect to see vacancy rates increase over the next year.
While southern Nevada’s medical office market rebounded from its dip into negative net absorption in the second quarter, it remains less robust than it was in 2018. Net absorption is generally lower this year than last, but no significant medical office development is expected in 2020.
The market seemed to get a boost from new construction in 2018, thus the current decrease in demand could be a matter of the lack of new medical office developments in 2019 and future development in 2020. In other words, it might take new construction to get the market out of its current slump.