The market expanded by 883,000 sf during the quarter-including a 240,000-sf building at 3883 Howard Hughes Parkway in Hughes Center-while market demand (net absorption) totaled 820,000 sf. Applied Analysis now tracks 1,700 buildings totaling 43.2 million sf. Looking forward, Applied Analysis research shows that projects under construction will expand the market by an additional 3.1 million sf over the next several quarters. Demand is not expected to keep pace and rents are expected to stagnate, according to Applied Analysis principal Brian Gordon.
"Following a rise in vacancies to normalized levels, the southern Nevada office market has managed to maintain stability during the second quarter, a condition that will not likely continue," Gordon says. "The amount of forward-looking supply remains robust and will outpace the amount of demand in the near term."
That having been said, Gordon adds that the office-using employment sector remains the fastest-growing segment, especially given the slowdowns in residential construction activity and a lack of new major hotel-casino property openings this year. "Future expansions within the resort corridor will certainly ripple throughout the economy in the coming years, providing increasing demand for space with above-average vacancies," he says.
Class A space had the lowest average vacancy rate at 6.8% and class B space had the highest at 12.8%, according to the report. The overall average asking rent was $2.35 per sf per month at mid-year, up from $2.21 per sf one year ago, according to the report. The modest rent growth should level off in the near term as existing inventory is forced to compete on price to reduce vacancies.
"Newly constructed buildings will continue to seek above-average asking rents during this rebalancing period [because] higher rents structures were certainly programmed into pipeline project pro formas in an effort to make financial sense of overall development costs," Gordon says.
Another Vegas office market report by locally based Restrepo Consulting Group and Colliers International, which track 36.6 million sf of office in the market, pegged the mid-year vacancy rate at 11%, up from 10.8% at the end of the first quarter, and the average asking rent at $2.51 per sf, unchanged from the end of the first quarter.
"The for-lease market is being impacted by the large amount of for-lease forward-supply as well as "shadow" vacancy in the office-condo market, which directly competes with much of the Valley's spec class B and class C buildings," says Vic Donovan, a managing partner with Colliers International. "We continue to closely monitor the office market and anticipate an adjustment period to draw correction to the supply-demand imbalance."
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