The recovery and expansion of Southern Nevada’s commercial real estate market continued in the second quarter of 2017. The industrial and multifamily markets are keeping up with near record levels of new development, medical office has picked up its pace dramatically, professional office continues to improve and the retail market bounced back from negative net absorption in the first quarter.
The chief complaint of industrial brokers in 2016 was that they were turning away tenants because there were not enough large contiguous spaces on the market. In 2017, developers answered that challenge, constructing by midyear 3.7 million square feet of new industrial product, all of it in the form of large warehouse/distribution buildings. The market has answered with 3.6 million square feet of net absorption, indicating that indeed there was demand in Southern Nevada that was not being met prior to the new developments of 2017 entering the market. Industrial vacancy remains a low 5.4 percent and the average asking rate for industrial space has not suffered much for all of the new development.
“With Southern Nevada’s new industrial construction boom well underway, the result has been encouraging,” remarked John Stater, the research manager of Colliers International’s Las Vegas office.
The hot multifamily market has kept up with the industrial market in terms of construction in 2017. Inventory of multifamily in Southern Nevada could expand by more than 5,000 units this year, and so far demand is keeping pace. Multifamily vacancy is a very low 3.3 percent, and asking rents continue to rise. An expanding population and difficulty for some to qualify for home loans should keep demand for multifamily high in 2017 and 2018. Sales of multifamily projects are slower this year than last, although the average sales price is up significantly.
Sales of hospitality properties remained light in the second quarter of 2017, although the announced sale of the Stratosphere and Arizona Charlie’s could improve matters by the end of the year depending on when those sales are recorded. Visitor volume is a tad shy of where it was last year at this time, but gaming revenue continues to grow. A total of 2,143 rooms sold in the first half of 2017, with total sales volume of $69.5 million and an average sales price of $32,424 per room.
Mike Mixer, Executive Managing Director for Colliers Las Vegas said, “While sales volume in 2017 may not equal that recorded in 2016, the overall sales picture remained strong at mid-year.”
Southern Nevada’s office market saw dramatic improvement in the second quarter of 2017. After five years of recovery, the office market saw its strongest demand in nine quarters, with net absorption of 545,955 square feet. This brought vacancy down to 16.1 percent, while asking rents remained at $2.02 per square foot (psf) on a Full Service Gross (FSG) lease. Vacancy is probably too high and asking rates too low to stimulate a large number of new speculative office developments in the Valley, but niche development will likely begin soon.
The medical office market in Southern Nevada may have finally shaken off the turmoil, both economic and governmental, that has plagued for the past few years. Net absorption has been positive for over a year now and was especially strong in the second quarter of 2017. Vacancy is still elevated, but it is falling. Development is on the rise, and appears to be stimulating the market, perhaps bringing medical practitioners the space designs they need to compete in the changing health care landscape. Whether the next round of healthcare reform in Washington D.C. will knock things off kilter is unknown, but as of yet they do not appear to be dampening demand for medical office space in Southern Nevada.
Despite some headwinds created by the closure of some large anchor stores in Southern Nevada, the retail market is looking up. A weak first quarter was followed by a much stronger second, putting the Valley on pace to chock 2017 up as another year of retail recovery. The second half of the year will see significant new retail inventory with strong pre-leasing completed in Southern Nevada, which should boost net absorption numbers for the year as a whole, and contribute to continued decreases in the vacancy rate.
2017 at midyear presents a mixed bag for land sales. In terms of acres sold, only commercial land looks poised to match 2016 levels. Sales are down tremendously for industrial land in 2017, though it should be pointed out that industrial sales were exceptionally strong in 2016 and would be difficult to match. Residential sales are down slightly compared to 2016, and price per square foot of residential land is also down. The price decreased experienced in residential land sales is reversed for industrial and commercial land, with commercial land experiencing a significant increase in price per square foot. This leaves us with a 2017 in which the number of acres of land sold will likely decreased compared to 2016, while total sales volume will likely match or beat 2016 levels – and all of this in the face of increased (or in industrial’s case near record) levels of new development. Land sales have been relatively strong since 2013, when real estate development was very restrained. Sales might lag a bit in 2017, but at the rate developers are developing, another banner year cannot be far away assuming the local economy continues to grow.
The full second quarter report of 2017 can be downloaded at: http://www.colliers.com/en-us/lasvegas/insights/marketnews/lvqreport.