Following Southern Nevada's unusually low pace of retail expansion in 2005—just north of one million sf was delivered--the first quarter of 2006 represented the beginning of some significant deliveries in the coming quarters. Applied Analysis principal Brian Gordon tells GlobeSt.com that projects containing 3.7 million sf remain under construction.
Given the substantial amount of pre-leasing that has occurred in those projects, "vacancies will remain tight and additional rent increases are inevitable," adds company principal Jeremy Aguero. "Average asking rates jumped 8 percent in the during the past 12 months, and increases during the coming year are anticipated to be in the 8% to 12% range due to stable demand and rising development costs."
A lot of developers have burnt through land they acquired last year and the year before at price substantially lower than today, says Nick Hannan, a VP with locally based developer Montecito Cos., which has some 700,000 sf of commercial space under development in the areas. "So the next wave of open-air centers will require a quantum rent increase" in order to pencil, he tells GlobeSt.com.
The region's 2.5% vacancy rate at the end of March--unchanged from the start of the year but down 100 basis points from this time last year--equates to about 1.1 million sf of available space. Net absorption for the quarter was 481,000 sf, up from 373,000 in the fourth quarter and 279,000 sf in the first quarter of 2005. Power centers had the lowest vacancy rate at 1.8%. Neighborhood centers posted the highest vacancy rate at 3.4%.
Average asking triple-net lease rates are highest in North Las Vegas ($2.43 per sf per month), the region's smallest retail market with about 2.3 million sf. The rate is up 30 cents compared to the first quarter of 2005. The biggest year-over-year jump occurred in the City of Henderson, where the average asking triple-net lease rate moved up 47 cents to $2.01 per sf. In Las Vegas proper, average asking rents jumped 15 cents to $1.75 per sf, and in unincorporated Clark County asking rents jumped 20 cents to $1.80 per sf.
"The one question that remains is will consumers be able to spend as they have the last 24 months to support retailers paying the higher rental rates," says Gordon. "Taxable retail sales growth has been in the double digits for the last two years. Can that pace of expansion continue? As long as it does, retails will be able to pay premiums."
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