E-Commerce Continues to Stimulate Commercial Real Estate
Colliers International Las Vegas Releases Third Quarter Reports
LAS VEGAS, Oct. 15, 2018 – Potent demand for warehouse/distribution space and continued population growth fueled another strong quarter for commercial real estate in Southern Nevada.
The industrial story in Southern Nevada is a warehouse/distribution story. The local population is growing at a faster pace than during the Great Recession, and the local economy is growing with it. Southern Nevada’s industrial market saw increased strong demand for warehouse/distribution space drive vacancy down to 4.6 percent, lower than one quarter ago and lower than one year ago. New completions of industrial space increased from last quarter, reaching 805,764 square feet. Asking rental rates remained stable at $0.66 per square foot (psf) on a triple net (NNN) basis. Demand for warehouse/distribution space looks as though it will remain strong in 2019.
“The focus of e-commerce companies on improved local delivery times is stimulating demand for warehouse/distribution space, and Southern Nevada’s developers are answering that demand.” remarked John Stater, the research and GIS manager of Colliers International’s Las Vegas office.
Demand for medical office space grew in 2017, and though it has softened slightly in 2018, it remained strong enough to bring vacancy down to an eight-year low. Over the past six quarters the vacancy rate has decreased from 16.2 percent to 12.1 percent, with only moderate growth in asking rents. Net absorption over the past six quarters was 660,683 square feet, more than net absorption in the previous 46 quarters combined. Clearly the lethargy afflicting the medical office market has cleared, both due to the general economic recovery experienced over the past decade and the relative lack of government intervention, which tends to make the market nervous. We think this growth will continue through 2019.
Mike Mixer, executive managing director said, “Southern Nevada’s medical office market is in growth mode and responding to the changing needs of both health care providers and consumers.”
As construction heats up in Southern Nevada, demand for Class A multifamily properties is holding its own, with only nominal increases in vacancy. As strong as net absorption has been in Class A properties, Class B/C properties have seen very light activity, with a slight decrease in vacancy and moderate rent growth. If newly completed projects in Southern Nevada are cannibalizing older projects, the older projects are managing to replace the tenants they lost, and at slightly higher rents. This suggests that continued multifamily development in Southern Nevada is warranted, but continued increases in rents, even in older properties, raise the concern that lower income residents are going to suffer.
Southern Nevada’s office market has made the transition from recovery to expansion, although it still has plenty of slack that can be taken up before new construction begins in earnest. So far, new construction in the Valley has served to facilitate the long-term movement of the upper middle class and upper class from the east side of the Valley to the west side. As available product continues to be occupied, a more widespread expansion of the office inventory may take place. At the current rate of demand, this might be as little as two to three years away if the local and national economies play along.
After a short pause at the beginning of 2018, Southern Nevada’s retail market is back on track and growing. With continued improvement in retail taxable sales and a return to population growth, Southern Nevada looks to be returning to growth in the retail real estate sector despite continuing pressure on brick-and-mortar retail from e-commerce. The retail market was the first commercial real estate segment to recover after the Great Recession and appears to have settled into a new normal with higher vacancy rates than in the pre-recession era.
While 2018 is not on track to beat 2014’s hospitality sales volume of $2 billion, it has exceeded the sales volume of each of the last three years. So far in 2018, hospitality property sales volume was $1.31 billion, with 4,751 units sold at an average price per unit of $276,000. This is an improvement over 2017 in all but the number of units sold, and exceeds the price per unit recorded in the most recent peak sales year of 2014. Buyers are bullish on the future of Southern Nevada’s hospitality sector, and may be pre-positioning themselves for the next building boom, which should take place in the early 2020’s.
Land sales saw improvement in the third quarter of 2018, boosted by a significant industrial land sale at Apex. Even without this sale, the land market was strong, stimulated by a boisterous local and national economy. Homebuilders are running low on improved lots in the Valley, and large contiguous acreage on which to build, and industrial developers are finding parcels well suited to development harder to find. Lack of available land is putting upward pressure on prices, and this could potentially slow land sales going into 2018.
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