Several new retail centers were completed during the quarter, adding 512,000 sf to the market and bringing the total to 43.3 million sf, according to Applied Analysis' latest market report. Net absorption largely kept pace at 399,000 sf, resulting in only a 20 basis point bump in the overall vacancy rate to 2.7% or 1.2 million sf since the end of March.
Through the first half of the year, one million sf has been added to the market and net absorption has totaled 878,000 sf, keeping vacancy 40 basis points below last year's mid-year mark of 3.1%. The one million sf completed in the first six months of 2006 is nearly as much as was completed in all of 2005, according to the report, and more is on the way as some 3.7 million sf remains under construction.
"During the first half of 2006, the market's expansion reached historical averages following a relatively cautious development schedule in 2005," says Applied Analysis principal Brian Gordon. "In addition to recent retail centers completed, the current wave of construction activity appears to be experiencing healthy preleasing activity suggesting a stable balance of supply and demand will prevail in the next several quarters."
Gordon's partner Jeremy Aguero, meanwhile, is concerned about rental rates. The marketwide average (NNN) asking rate now stands at $1.97 per sf per month, up 12.5% from the end of the first quarter and 17.9% higher than mid-year 2005. Concurrently, taxable retail sales that were up 8.9% over the last six months were up only 4.9% in June, a sign of slowing consumer spending that is backed up by a decline in drivers license surrenders, a key gauge of population growth.
"Increased land and construction costs continue to drive prices north for tenants, which may have some national retailers looking to other markets for expansion opportunities," he says. "While local and regional firms have welcomed high consumer spending levels in recent years, that trend appears to be softening and has the potential to impact tenants' ability to pay premiums for shop space."
By type, power centers had the lowest mid-year vacancy rate at 1.8% while neighborhood centers had the highest at 3.8%. By location, Unincorporated Clark County and the City of Las Vegas tied for the lowest vacancy rate at 2.4%. Clark County's rate is down 120 basis points since mid-year 2005 while Las Vegas' rate is down 50 basis points since this time last year.
The submarket with the highest vacancy rate, the City of North Las Vegas, still came in under 4%, albeit barely as 3.99%. The rate in North Las Vegas, which has hosted a goodly portion of the region's new construction, is up 150 basis points since this time last year.
Then again, North Las Vegas also had the region's highest average asking rental rate, $2.59 per sf per month at the end of June, up 20.5% since June 2005. The City of Henderson posted the second highest average asking rate at $1.97, largely unchanged from 12 months earlier.
Unincorporated Clark County largely caught up over the past year, its average asking rate increasing 22% to $1.94 at the end of June. The average asking rate in the City of Las Vegas stood at $1.83 at the end of June, up 8.3 since mid-year 2005.
Project completions in the quarter included the Whole Foods-anchored second phase of the District at Green Valley Ranch by American Nevada Co. and two projects in North Las Vegas, the Smith's-anchored Aliante Marketplace at Interstate 215 and Aliante Parkway, also by American Nevada Co., and a neighborhood center at Centennial Parkway and Losee Road.
One of the larger projects under construction is Summerlin Centre, a project of General Growth Properties' subsidiary Howard Hughes Corp. Designed to be the commercial heart of the 36-square-mile Summerlin master-planned community, it will include 1.2 million sf of retail shopping as well as 5,500 housing units, a 250-room four-star hotel and at least one million sf of office space.
The development site is located northeast of the intersection of the 215 Beltway and Sahara Avenue, about 12 miles from the Las Vegas Strip. An adjoining 300 acres that already includes the new Red Rock Casino, Resort and Spa will consist primarily of residential development.
Construction of Summerlin Centre's 100-acre community hub will get underway in the spring. Fall 2008 is when the first developments are expected to open, but the project won't be built out for another 10 years after that.
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