(For more retail coverage, click GlobeSt.com/RETAIL.)
LAS VEGAS-The 43.7-million-sf Las Vegas Valley retail market continued to perform well in the third quarter, with 210,000 sf of new additions offset by 188,000 sf of net absorption, keeping vacancy at 2.7%, according to a third quarter report by Applied Analysis, a locally based business advisory. Through the first nine months of the year, 1.3 million sf has been delivered and 1.2 million sf has been absorbed.
The delivery of new product is expected to pick up in 2007, as some 5.2 million sf of space is under construction. Despite that, vacancy is expected to remain low if a bit higher and rental rates should continue to rise, says Applied Analysis principal Brian Gordon.
"During the past several quarters, the retail market has cautiously developed space only after significant pre-leasing requirements are met," says Gordon. "While recent completion levels have been below average, we have noted an above-average amount of space currently under construction and in the future development pipeline. Significant construction activity signals aggressive development plans to meet what is seen as pent-up demand in some rapidly developing submarkets. Despite this wave of activity, we anticipate vacancy rates to post only modest increases while average asking rates will continue to climb."
One existing example of this is the City of Henderson. Vacancy in the 8.5-million-sf submarket is up to 3.6% from 2.6% this time last year. During that same period, asking lease rates have risen from $1.49 per sf per month to $2.07. By contrast, in the 2.8-million-sf North Las Vegas market, where vacancy has gone in the opposite direction, falling from 3.7% to 2.4% over the past four quarters, asking lease rates have jumped by nearly 50%, rising to $2.62 from $1.79.
In the larger markets of Unincorporated Clark County (16.8 million sf) and the City of Las Vegas (15.6 million sf), vacancy and rates changes were much more modest. Clark County vacancy fell 40 basis points during the quarter to 2.3% while rates jumped $0.20 to $1.97. In Las Vegas proper, vacancy increased 30 basis points to 2.8% while rates gained $0.06 to $1.85.
"Based on taxable retail sales activity, we have heightened concerns about how retailers will be able to make new shop space pencil out given rising rental rates," says Gordon's partner, Jeremy Aguero. "While this may only be an interim slowing, should spending track at or below the rate of population growth, retailers would be expected to revisit and revise expansion plans."
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