Part of the reason for the boost in class A rates is its general lack of availability. Of the 24.25 million-sf suburban office market--which accounts for 95% of the overall office market--class A space totals just under six million sf. The lack of supply creates high demand, which has led to strong absorption of what does come to market. As a result, while overall suburban vacancy stands at 10% class A vacancy is nearly 300 basis points lower at 7.2%.
Not surprisingly, the addition of class A space is accelerating. On the heels of adding one million sf over the past 12 months, the market will add another 1.2 million sf during the next six months. With much of it already having been spoken for, any uptick in vacancy is expected to be short lived, according to the report.
The largest upcoming addition to the class A office market will occur at Hughes Center, the 115-acre class A office development at Paradise and Flamingo roads that has 1.1 million sf in eight buildings but has not added to that total since 1999. That will change in early 2007, when Crescent Real Estate Equities delivers an 11-story, 240,000-sf tower at a cost of $72 million.
Crescent's senior vice president of leasing Bob Boykin told GlobeSt.com in August that signed leases are in hand for more than 60% of the building. "We most definitely will be 93% leased" by the time the first space is ready for occupancy in February 2007, he says. "Some of our existing Hughes Center tenants who need expansion space will move into the new building, and we are already backfilling the space they are leaving."
More than half the space that's already been taken in the new building will be occupied by Boyd Gaming, Eschelon Resorts and the Snell & Wilmer law firm. The base monthly lease rates on the preleased space ranges from $3.05 per sf to $3.25 per sf, depending on location and term and the tenant-improvement allowance. The leasing assignment for the latest Hughes Center Tower is in the hands of Tom Stilley, senior vice president of office properties at Colliers International.
The preleasing demand has Crescent ready to follow-up the new building with a smaller sister building. The eight-story, 170,000-sf tower will break ground in 2007 if demand holds up, Boykin said. The starting triple-net lease rate for that building will be $3.25 per sf due to rising construction costs. The per-sf price range for the existing buildings in the development ranges from $2.60 per sf for the lower floors of the older buildings to $3.05 per sf for the upper floors of the newest building.
The other significant near-term addition to the market is a six-story, 150,000-sf building being developed by board members of the Business Bank of Nevada in the Summerlin area of Northwest Las Vegas. As of last month, the $40-million development (including land costs) was 70% preleased and scheduled for delivery in the first quarter of 2007, with the bank having preleased about 35,000 sf.
CB Richard Ellis, the brokerage with the leasing assignment, expects the project will be fully leased prior to occupancy, which is scheduled for May 2007. The largest contiguous availability is about 25,000 sf on the third floor. The asking lease rate is $2.60 per sf per month, which equates to an annualized rate of $31.20 per sf.
In addition to the bank, tenants already signed include Fertitta Enterprises, a prominent gaming company in town; the Law Offices of Dan Goodsell and Mike Olsen; Harris and Associates; Clark Seegmiller and Associates; and Coffey and Rader CPA's.
"Between CBRE and the contacts the bank has and the visibility and high-profile nature of some of the other tenants, I'd say we're probably doing better than we had expected," Business Bank of Nevada SVP Paul Stowell told GlobeSt.com in September. "In the next 30 to 60 days, we will be announcing other high-profile companies that will be leasing space."
Located at 10801 W. Charleston Blvd., the building will be the first class A office building located in Summerlin Centre, an urban village master-planned development that will have a good mix between commercial, residential and retail space totaling approximately three million sf. The retail center, which is expected to break ground later this year, is slated for completion in 2009.
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