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Report: Las Vegas On The Rebound

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LAS VEGAS (CBS) – Colliers International – Las Vegas’ second quarterly market report of 2011 shows that after four years of recession, Southern Nevada’s commercial real estate market is on track for improvement.  The report was compiled by John Stater, research director for Colliers International – Las Vegas. 

Stater says the retail market should be the first sector of the local commercial real estate market to feel the effects.  That is assuming gaming numbers continue to improve and the gaming sector adds jobs.

Stater says while both job and real estate performances continue to be weak in 2011, all signs point to eventual recovery.  Southern Nevada continues to add office jobs in some sectors and this has translated into marginally better performance in the office real estate market. 

“Gaming revenue and visitor volume numbers are gradually improving.  Economic improvement on the Las Vegas Strip should be a boom to the Southwest and West Central submarkets, which are dominated by tenants that supply goods and services to the resorts,” Stater said.

Colliers is pleased to announce that its 2Q market report is the only local market research and analysis which includes hotel and multi-family data.   The report offers up-to-date statistics concerning the commercial office, industrial and retail market segment.  It is available at www.lvcolliers.com.

Other key findings of the report, broken down by market segment include:

Retail

“Southern Nevada’s biggest problem now is vacancy in large anchor spaces, a problem that can only be solved by large national and regional chains moving into or returning to Southern Nevada,” Stater said.

Southern Nevada’s retail market, which last year appeared to be heading toward recovery, has now gone through two quarters of worsening net absorption numbers and rising vacancy.

Retail vacancy now stands at 12.1 percent. This is a 5.1 percent increase from one quarter ago and a 15.1 percent increase from one year ago.

The retail average asking rent now stands at $1.48 per square foot on a triple-net basis. This is a $0.07 (or 4.8 percent) decrease from one quarter ago and a $0.17 (or 10.3 percent) decrease from one year ago.

Retail net absorption was negative 257,542 square feet this quarter. This is a 66,675-square foot (or 34.9 percent) decrease from one quarter ago and an 87,677-square foot (or 25.4 percent) increase from one year ago.

There were 0 square feet of retail completions this quarter. This is a 2,911-square foot decrease from last quarter and places numbers right back to 2010’s first quarter numbers when there were no new completions.

Vacancy in Southern Nevada retail centers reached 12.1 percent in the second quarter of 2011, the highest level of vacancy yet recorded.

Most of the retail leasing activity in 2011 has been with local retailers totalling nearly 70 percent. The most active retail categories were salons and spas, general retail and amusement and recreation.

Investment sales for single-tenant retail has an average sales price of $126 per square foot thus far in 2011.  The 230,000 square feet sold in the first six months of 2011 is about double what was sold in the same time in 2010.

Office

Of the office deals tracked so far in 2011, more than half were with education, legal services, business services, real estate services and health services businesses. Local companies made up 51 percent of the tenants taking space so far this year, but only 44 percent of the total office space taken. 

Nevada’s office market continued its inconsistent ride posting an increase in net absorption through the second quarter.  The office market has veered into positive net absorption territory in four of the last eight quarters, though over that same period still posted an absorption deficit of 382,000 square feet.

The amount of distressed office space is still increasing from one year ago, but unless a new wave of defaults hits, this issue has peaked.

According to Stater, asking rents are falling at a much slower pace and probably have a ways left to go before hitting bottom.

The vacancy rate in the valley’s office segment now stands at 24.5 percent, representing a 0.4 percent decrease from the previous quarter and a 3.1 percent increase from one year ago.

The office average asking rent now stands at $2.00 per square foot on a full service gross basis. This is a $0.05 (or 2.5 percent) decrease from one quarter ago and a $0.14 (or 6.4 percent) decrease from one year ago.

Office net absorption was 37,889 square feet this quarter. This is a 195,897-square foot (or 124 percent) increase from one quarter ago and a 448,239-square foot (or 109 percent) increase from one year ago.

There were 0 square feet of office space completed this quarter.  This is a 175,000-square-foot decrease from one quarter ago and a 103,000-square-foot decrease from one year ago.

While this quarter did not have any new completions, the Las Vegas Metropolitan Police Department’s new 300,000-square foot headquarters is scheduled for completion next quarter and should keep net absorption in positive territory barring any sudden shifts in the market.

In the past year, a net of 4,100 jobs were created in sectors traditionally associated with office space, according to the Nevada Department of Employment, Training & Rehabilitation.

“Southern Nevada’s office market may not have provided much excitement this quarter, but it at least got its head above the water after taking a dunking in the first quarter of 2011,” Stater said.  “If a happy trend can be found, it is in Class C office space, which has now posted three quarters of positive net absorption.” 

Industrial

“The tide appears to have finally turned for Southern Nevada’s industrial market,” Stater said.  “While we are not yet willing to declare a recovery trend, we are willing to declare that the downturn that started in 2008 is essentially over.”

Industrial vacancy now stands at 15.5 percent. This is a 1.2 percent decrease from one quarter ago and a 1.0 percent increase from one year ago.

The industrial average asking rent now stands at $0.53 per square foot on a triple-net basis. This is a $0.01 (or 0.7 percent) decrease from one quarter ago and a $0.03 (or 4.7 percent) decrease from one year ago.

Industrial net absorption was 207,667 square feet this quarter. This is a 366,922-square foot (or 230 percent) increase from one quarter ago, and a 649,609-square foot (or 147 percent) increase from one year ago.

There were 0 square feet of industrial completions this quarter. This is a 22,000-square foot decrease from one quarter ago and a 30,000-square foot decrease from one year ago.

Industrial sector jobs are still being lost. In the past year, no sector of industrial employment has added jobs. 

Although vacancy rates remain high, several build-to-suit projects are on the drawing board, suggesting that a good portion of the Valley’s empty space is not found desirable by the companies wishing to establish a presence in Southern Nevada.

All of the positive net absorption in the second quarter can be attributed to 148,000 square feet of warehouse/distribution space, which is generally heavy on square footage but light on its comparative labor needs.

Inflation-adjusted asking rates are as low as they have been since Colliers Las Vegas began tracking the industrial market in1999.

Multi-Family

The second quarter of 2011 saw multi-family vacancy fall to 8 percent from 8.5 percent last quarter.

The big news this quarter was the May property auction held by auction.com. The auction saw notes on nine multi-family projects trade hands. Buyers appear to have been buying these notes to obtain the properties, with the intent to sell them at a profit in the near term.

More owners are now back in the market and thinking about deals, and hundreds of millions of dollars are now poised to enter Southern Nevada’s multi-family market.

Stater says as it stands now, Southern Nevada’s multi-family market looks to be well-positioned for recovery and growth in 2011 and 2012.

Stater also notes the multi-family sector has risen in popularity across different age groups.  “Demographically speaking, both Generation X’ers and Baby Boomers are showing a predilection for rental properties, the former being suspicious of the value of home ownership after the recent crash, and the latter preferring a lifestyle not tied down to a mortgage,” he said.

Hotel

In the second quarter, hotels reported occupancy of 87.7 percent, up 3.7 percentage points from one year ago.

The average daily room rate was $105.67, up $8.80 from one year ago.

In general, the hospitality industry in Southern Nevada is on the mend, with gaming revenue close to the 5-year average of $813 million per month and visitor volume surpassing the 5-year average of 3.2 million people per month.

The resurgence in Southern Nevada’s hospitality sector can be seen in its employment numbers.

The Nevada Department of Employment, Training and Rehabilitation reports that employment in the leisure/hospitality sector increased to 261,900 jobs in April of 2011, an increase of 7,000 jobs compared to April 2010.

Stater says given the tough times that Southern Nevada’s hospitality sector has endured over the past four years, it is not surprising that sales of hospitality products remain slow.  The real action in hospitality sales has been in the form of large note sales with the intent to take possession.

“Hospitality sales are up in the United States, and though they remain weak in Southern Nevada, the transfer of many large notes indicates that investors are finding the local market a safe investment,” he said.

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