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Office Report: Construction Tops Absorption in 2006

LAS VEGAS-Including a 223,000-sf shortfall in the fourth quarter, office space absorption came up 1.2 million sf short of new construction in 2006, pushing vacancy up by more than 200 basis points.

By Brian K. Miller | Updated on January 15, 2007

LAS VEGAS-Absorption could not keep up with record new construction in the Las Vegas Valley in 2006. New product brought online in 2006 totaled 3.7 million sf while absorption came in at 2.5 million sf. The 1.2-million-sf spread pushed overall region wide vacancy to 10.5% from 8.4% at the beginning of the year, according to a year-end report from Applied Analysis, a locally based research and consulting firm.

While a 10% vacancy rate is thought to be a reasonably healthy market, the vacancy rate has been rising in each of the past five quarters. Moreover, the trend is expected to continue through 2007 because an additional 4.2 million sf is under construction and an additional 7.4 million sf is in the pipeline.

“While the office market’s performance during the majority of 2006 reflected a relatively healthy environment, it is now showing clear signs that a materially softer condition is likely to prevail in 2007,” says Applied Analysis principal Brian Gordon. “Forward-looking supply remains substantial with under construction projects representing more than 10% of existing inventory, a condition that will certainly cause vacancies to rise.”

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