The Commercial Real Estate market in the Las Vegas Valley continued its uneven recovery in 2013 and construction of industrial, office and retail space, which had been nearly non-existent, increased by the end of the year, according to a recent analysis. While there are some promising signs, the uneven recovery looks to linger in the near future as the local economy faces some headwinds.
The Commercial Real Estate Survey: 4th Quarter, 2013 from RCG Economics and the UNLV Lied Institute for Real Estate Studies analyzes the industrial, office and retail markets in the Las Vegas Valley and contains a number of meaningful market indicators, including noting new and planned construction activity.
Employment data reflects the unevenness of the recovery. Industrial employment “indicates that we are now in the midst of a recovery.” Job growth figures for the office sector have been “moderate, averaging 2% overall,” while retail sector employment showed “relatively strong gains throughout 2013” as part of a 3-1/2-year string of continuous increases.
Vacancy rates in the industrial sector have been plummeting and an increase in construction related to this sector is further evidence of a recovery. While no industrial construction projects were completed in the fourth quarter of 2013, there was nevertheless construction activity.
There were five projects under construction by the end of the year, four of which support the trend of build-to-suit warehouse/distribution developments: Konami Gaming’s expansion (193,000 sf in Airport); FedEx Distribution Center (296,000 sf in Henderson); Nicholas & Company (200,000 sf in North Las Vegas); and TJ Maxx’s expansion (300,000 sf in North Las Vegas). The remaining project is a 70,000-sf Light Industrial building for VadaTech’s manufacturing facility.
While noting the signs pointing to a recovery, the report also expressed a word of caution.
The biggest challenge facing the local industrial market is what we noted above, a lack of readily available contiguous industrial space above 100,000 sf. The reasons are numerous: tough lending climate, Las Vegas’ less than stellar economic recovery and land pricing and availability issues, to name a few. But the fact remains, this situation will potentially hamper the region’s recovery and economic development efforts if not addressed during the next couple of years.
While relatively little office space was completed in 2013 (just 26,000 SF for the entire year), construction activity in the office sector had picked up significantly by the end of the year, with 565,000 SF under construction.
A higher level of completions are expected for 2014 as we recorded five spec office projects in the forward supply pipeline by the end 2013, of which all were under construction. Two developments are underway in the Northwest, including the office components of the Shops at Summerlin (198,000 sf in Class A) and Tivoli Village (68,000 sf in Class A). The second phase of the Seven Hills Plaza continued its progress into Q4 and when completed, will add 44,000 sf of Class B space in Henderson. The Gramercy’s two 100,000 sf Class A buildings in the Southwest moved forward from planned status and broke ground in Q4. The remaining project underway is the EVAPS Law Office building in the Downtown submarket (55,000 sf in Class B).
The report expects “job market headwinds” to hamper the office market in 2014, noting, “while most local economic indicators continue to improve, the recovery of many of the office-using job sectors remains sluggish.”
Construction activity in the retail sector is consistent with the others – little or no completions during 2013 but a handful of projects underway by the end of the year. As with the industrial sector, “[n]o new anchored retail space in the Valley was completed during Q4, 2013.” There was construction activity during the quarter but RCG-Lied isn’t convinced that trend will continue, although the amount of unused space will continue to shrink.
Under-construction retail space included two Community Centers being built in phases, including the 138,700-square-foot Green Valley Crossing in Henderson and the 140,000-square-foot Target-anchored center in the Northwest.
From what we know, we do not see much new retail development taking place in 2014. This will help the Valley’s anchored retail market trend back toward a 10% stabilized vacancy rate.
This sector, too, faces headwinds from the job market.
[T]hese improvements are largely driven by the use of consumer debt and not necessarily growing wages and incomes, and weekly work hours, which remained listless. As the anchored retail market moves into 2014, job and wage growth will remain a concern, as we have noted, but RCG and Lied expects a progressively healthier market this coming year. We hope that this trend spreads to the unanchored retail market, which remains anemic. It is likely that we will continue to see a number of unanchored centers re-tenanted for non-traditional users like call centers.