Applied Analysis principal Jeremy Aguero says that while vacancies remain elevated compared with the prior year and the lows witnessed in late 2005, a more stabilized environment has prevailed in recent quarters, with the level of investor purchases and speculative leasing slowing materially. With over 6.5 million square feet of availability, he says users that require space in reasonably-accessible locations now have greater access and bargaining power—a condition not present 12 and 24 months ago. "The market reported a much more modest level of space under construction, suggesting runaway vacancy rates are unlikely in the near term," Aguero says. "We expect vacancy rates to remain in the mid to high single-digit range over the course of the next several quarters. Pricing remains the X-factor for many users as competition within the southwestern United States remains fierce and development costs in southern Nevada remain elevated. Projects entering the market may find it difficult to meet financial targets should lease rate growth remain soft."Applied Analysis is reporting that the industrial market expanded by 1.5 million sf during the quarter while demand totaled approximately half of that total. Speculative space additions contributed to a rising vacancy rate, which hit 6.7%, up from 6.0% at the start of year and 4.5% this time last year.
CB Richard Ellis says the first quarter marked the sixth straight quarter of increasing vacancy. CBRE is reporting only a 17 basis-point increase in vacancy during the quarter—to 6.1% from 5.94%—but has a lower overall vacancy rate for this time last year, 3.8%, which means both firms show a year-over-year vacancy increase of more than 200 basis points.
Albeit differently from the other two, Grubb & Ellis also is reporting a plus-200 basis-point increase in the vacancy over the past year, to 7.4% from 4.9%, including a 120-point jump this past quarter.
That all being said, vacancy and asking rates vary substantially from submarket to submarket around the region. According to Applied Analysis, vacancy by submarket ranged from 5.7% (Unincorporated Clark County) to 9% (Henderson), and by type ranged from 8.5% (flex space) to 5.6% (manufacturing). By submarket, average monthly asking rental rates ranged from $0.63 per sf (City of North Las Vegas) to $0.93 per sf (City of Las Vegas) and by type from $0.66 per sf (distribution) to $0.91 (manufacturing) to $1.08 (flex).
Excluding the tiny Northwest submarket, which has less than 1 million sf of inventory and a double-digit vacancy rate, CBRE is reporting that vacancy by submarket ranged from 4.8% in the 8.2 million-sf area closest to the Las Vegas Strip to 7.78% in 27 million-sf North Las Vegas submarket, which includes the City of North Las Vegas. Vacancy in the 32 million-sf Southwest submarket was 5.28%. Average Asking monthly rental rates ranged from $0.65 in North Las Vegas to $0.96 in the Southwest submarket. By type, asking rates ranged from $0.65 for distribution to $0.81 for mid-bay to $1.06 for flex/incubator space, according to CBRE.
Grubb & Ellis breaks down the Valley in similar fashion. Again excluding the 900,000-sf Northwest submarket, which it pegged at 34% vacant, Grubb & Ellis has vacancy ranging from 3.4% in its 5.4 million-sf Central Las Vegas submarket to 11.5% in its 11.6 million-sf Henderson submarket. The two largest submarkets, Southwest (30 million sf) and North (29 million sf), posted vacancy rates of 5.6% and 7.8%, respectively.
The three market reports estimate that between 3 million sf and 4 million sf of industrial space is under construction. Regardless, the level of activity is the lowest it has been in three years, according to Applied Analysis.
"In the past two years, rising construction costs and a scarce amount of available land for industrial development made developers weary about starting new projects," according to the G&E report. "Of the projects that did get underway, most of them are now complete. However, the amount of new buildings under construction is starting to dwindle as many planned projects, which were feasible at the time, are being scaled back or even cancelled."
Despite the slowdown in construction, sales and leasing, there is still activity. Panattoni this month announced the completion of the first phase of Civic Center Corporate Park in North Las Vegas, which includes units ranging from 4,000- to 8,600 sf, and Voit Commercial on behalf o Northwestern Mutual announced the completion of the fourth and final phase of Pacific Business Center, a 13-building, 898,389-sf business park located in Henderson.
In the bigger of the first quarter leases Monster Cable Products ink signed a 64-month, $6.36-million commitment with ProLogis for 229,320 sf of warehouse and distribution space at Las Vegas Corporate Center for its national distribution center, according to CB Richard Ellis, which represented Monster Cable. Other plus-100,000-sf deals include commitments by Ausra Manufacturing, MGM Mirage Design Center, Certain Teed Gypsum Finishing and Graybar Electric Co.
On the investment front, few deals have occurred. There have been less than one dozen sales since the start of the year, according to Real Capital Analytics, and only four of those deals were for more than 70,000 sf. The largest was Portland, OR-based Harsch Investment Properties' $16.2-million acquisition of Trident Industrial Park, a four-building 130,000-sf industrial complex on 10.6 acres in North Las Vegas.
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