The demand for industrial space has been extraordinarily strong in Nevada throughout this economic expansion and is expected to stay consistent throughout the rest of this year and into 2021, according to real estate professionals throughout the state.
Originally, a decline in demand was expected due to the country’s trade war with China, but with trade tensions easing that potential hurdle has been eliminated for now.
With the recent economic fallout and spike in unemployment claims from the coronavirus pandemic, industry analysts and brokers believe demand for industrial space will remain consistent during the outbreak.
The long-term effects are unknown, but there is a strong underpinning of the Nevada economy, including low interest rates, the ever-increasing amount of online commerce and a demand for faster delivery of goods.
“Logistics today, is still a very strong sector,” said Michael Dermody, chairman and CEO of Dermody Properties. “We expect the industrial market to come out of this really well.”
Brokers in Nevada remain cautious about a recession but believe current market conditions are 100 percent dependent on a resolution to the coronavirus outbreak.
“The economic expansion that has been the longest in the modern era was bound to come to an end but no one could have predicted that such an event as the (coronavirus) would be the reason,” said Doug Roberts a partner with the Panattoni Development Company.
“Real estate developers, along with investors, capital partners and lenders, were optimistic going into 2020 but the balance of the year is very uncertain,” Roberts said. “From a strictly economic standpoint, the low vacancies across the U.S. industrial markets will allow property owners and real estate developers some runway in the inevitable recovery since industrial in particular was over built during this last cycle.”
Reed Gottesman, senior vice president, regional manager with Harsch Investment Properties, said they’ve debated when the next recession was going to hit the state’s economy.
“Strong markets do not die of old age, an event must occur, and we are currently living through that event,” Gottesman said. “In the short-term, this will be a difficult time for all businesses and workers in our community and beyond.”
Gottesman stressed that the industrial real estate market is not immune to the coronavirus outbreak, but the supply chain remains an essential part of our country’s economy.”
Dermody noted that e-commerce continues to surge. According to the U.S. Federal Reserve, e-commerce as a share of total sales in the U.S. has grown from 4 percent in 2010 to 11 percent in 2019.
“Online deliveries and e-commerce are a great part of our economy,” Dermody said. “We look forward to continuing our work with this segment of our customers.”
Amazon developed an 800,000-squarefoot warehouse in North Las Vegas. Other examples are Bed Bath and Beyond’s 500,000 square feet of industrial space in North Las Vegas and Fanatics’ 400,000-square-foot building at the Northgate Distribution Center, near Lamb Boulevard and Interstate 15.
Dermody Properties assisted Urban Outfitters in 2017 to a built-to-suit project in Northern Nevada to develop their national flagship after the recession.
Dermody doesn’t see the state overbuilding in the industrial sector, as long as the current health concerns ease in the next few months.
“Overbuilding is always a danger,” said Dermody, adding that it’s about identifying where the goods are going and build there, you don’t build and hope the goods come to you.
Vacancy and Demand
The vacancy rate remained low as the industry entered the first quarter of 2020 at 3.9 percent in Las Vegas, a slight decrease from 4.2 percent in September 2019, CBRE data showed.
In Northern Nevada, the vacancy rate stands at 4.5 percent, a decline from 5.5 percent as the region continues to post net absorption growth at more than 3.5 million square feet.
The 100-basis point decline represented the largest drop in the vacancy rate in two years and Dermody expects the vacancy rate to hold steady in the near term.
Tenant demand is expected to help keep the vacancy rate low, with substantial leasing activity from distribution and manufacturing tenants. In Northern Nevada, which includes South Reno, Sparks and four other submarkets, the overall asking price is 49 cents per-square-foot.
“So far the market has been very strong,” said Dermody, adding there is a significant range in lease rates for each northern Nevada submarkets. Those rates range from the high 30 cent to low 40 cent range in the north valley to the high 40s to 60 cents a square foot per month in the Airport and south Reno submarkets, depending on the size and the use of the tenant spaces.
Significant developments this year include The Park at McCarran located east of the Reno Tahoe Airport at Mill Street and McCarran Boulevard and the second phase of the LogistiCenter at 395 located in the North Valley, submarket of Reno.
Dermody Properties said The Park at McCarran will total 1.13 million square feet of infill industrial space spread across five buildings that will cover about 60 acres of the 104-acre property. The project has been described as a chance to develop one of the largest undeveloped parcels left within the Reno-Tahoe International Airport submarket.
The site had been used by the University of Nevada, Reno since 1956 for agriculture, teaching and research.
Dermody, in partnership with Reno Land Inc., is looking to begin work on the five-building project in July and is already marketing two buildings with 467,000 square feet of space.
“Its location south of Interstate 80 at Mill Street and McCarran Boulevard make it attractive to a variety of users,” Dermody said. “Our target users … are small to larger manufacturers, e-commerce companies and distribution companies who have not had the opportunity to lease this kind of space in a central location close to their workforce.”
The industrial project is being marketed to companies in the 20,000 to 300,000-square-foot range.
Other projects include Victory Logistics District. The 4,300-acre master planned development was the second largest commercial land purchased in state history covering nearly seven square miles along Interstate 80 in Fernley some 30 miles east of Reno.
The largest land deal was in 2018 when Blockchains bought 101 square miles at the Tahoe Reno Industrial Center, about 15 miles east of Reno.
Mark IV Capital has broken ground on its first spec building. Known as Victory Building A, it will offer 815,800 square feet of space. The company cited location and infrastructure as reasons for moving forward with the project.
It sits on a site near Interstate 80 and U.S. Highways 50 and 395, putting it within a one-day drive of San Francisco, Los Angeles, Seattle, Portland, Phoenix and Salt Lake City.
Dermody said that with a population of 350,000 people in Reno it has the largest per-capita industrial space in the country.
Dermody noted that Las Vegas has become a national market in the last 15 years.
Over the 1.3 million square feet of new industrial development that began in the fourth quarter of 2019 and is set to be complete this year, 70 percent of the total square feet were speculative development.
With six submarkets within the Las Vegas region, a staggering 7.2 million square feet of industrial spaces was under construction in the first quarter, with more than 7.5 million square feet of space planned for future development.
Nearly 5.4 million square feet of positive net absorption was reported at the end of 2019. Gottesman said space was continuing to be absorbed and land transactions were moving forward in the first couple of months of 2020.
“There was momentum in the market,” Gottesman said. “We are all in the process of adjusting to a new reality.”
Henderson continues its expansion with an estimated 1.7 million square feet under construction, second only to North Las Vegas. Among the projects are a 290,000-square-foot FedEx ground facility, and Matter Real Estate Group is building 500,000 square feet of industrial space in West Henderson that will include seven buildings.
Panattoni Development Company has acquired 40 acres near the Las Vegas Raiders training facility and expects to build three-buildings totaling 850,000 square feet. Groundbreaking for the buildings should take place by summer with completion expected by the first quarter of 2021.
“West Henderson has gone through a complete transformation during the last five years as the locational advantages of the area for manufacturing, logistics and warehousing companies became very evident,” Roberts said. “Given the area’s workforce, access to Interstate 15, compatible zoning, and the completion of the major backbone infrastructure required to service the needs of industrial users has led to a land shortage in early 2020 and a substantial increase in the available land’s pricing.”
Companies recently locating in the area include Kroger, FedEx, Amazon.com and Turano Bakery.
“With the addition of the Raiders corporate headquarters and practice facility, the area is now established as one of the premier business parks” in Southern Nevada.
Nearby, is the southwest industrial market with 44.75 million square feet of rentable space. The region has been in high demand from companies with one of the lowest vacancy rates in the region at 1.9 percent and an asking lease rate of 93 cents per-square-foot.
Only the area around McCarran International Airport at 1.7 percent and the central Las Vegas area at 1.4 percent have lower vacancy rates.
“Although we remain optimistic about the future, everything has changed over the past three weeks,” Gottesman said. Harsch Investment Properties currently has more than 220,000 square feet of industrial projects in the pipeline, including Sunset Airport II located in the Airport submarket.
Areas of Promise
Of the region’s submarkets with the largest inventories of industrial properties, North Las Vegas continues to stand out this year, with more than 4.822 million square feet under construction.
The region is home to five of the largest industrial completions in the last year.
Those developments include the 855,000 square foot Tropical Distribution Center, Sunpoint Crossing at 752,384 square fee, Prologis I-15 Speedway Logistics Center 3 at 632,324 square feet, Prologis I-15 Speed way Logistics Center at 367,000 square feet and 70-78 West Craig Road at 343,820 square feet.
John Lee, mayor of North Las Vegas, said the city continues to benefit from industrial projects.
Since 2014, North Las Vegas has seen 67 million square feet of development, translating into a $5 billion economic impacts. And the city still has room to grow, with only about half of its 104-squaremiles built out.
Lee said North Las Vegas sees the success of Apex Industrial Park as an important part of the city’s continued growth. Last year, the city confirmed plans from French gas company Air Liquide to build a $150 million liquid hydrogen production plant in Apex.
Other developments at the site include Lhoist International, Republic Services and Love’s Truck Stop.
“We remain committed to the next several phases of our Speedway Commerce Center in North Las Vegas, which represents a significant portion of small to medium sized distribution businesses,” Gottesman said.
Dermody Properties has closed on 40 acres, which is the first phase of a multiphase project that will offer close to 1.3 million square feet of industrial and logistic space upon completion. LogistiCenter at Apex will play an important role for the future of industrial growth in Southern Nevada for years to come as land for larger users has become more challenging to find.
Dermody said he was “bullish” about the future of Apex, “as long as the infrastructure is going to be there.”
Apex’s future success hinges on infrastructure. Mayor Lee confirmed that weight miles of an under-construction 12- mile water line will be completed this year.
He added that water pumping stations are being built. Located 20 minutes northeast of Las Vegas along Interstate 15, Apex has been without a water source since day one.
“Apex is 18,000-acres with multiple projects moving forward,” Lee said.
City officials have estimated that up to 20,000 direct jobs and 56,0000 support jobs could be created when Apex is fully developed.