A Happy 2018 for Commercial Real Estate

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LAS VEGAS, Jan. 22, 2019 – At the dawn of 2018, it looked as though Southern Nevada was going to have trouble absorbing the millions of square feet of industrial product slated for completion during the year. At the end of 2018, all we can say is, “Mission accomplished!” Southern Nevada ended the year with 3.6 percent vacancy, the lowest vacancy rate in the Valley since the end of 2006. E-commerce and transportation companies led the pack in occupying industrial space in 2018. Where out-of-state tenants coming to Southern Nevada were once primarily from California, out-of-state tenants in 2018 came from a much broader geographic range in the United States.

Southern Nevada’s industrial market had a very strong 2018 and is poised to do much the same in 2019. Development in the market has been met by strong demand, and tenants are now coming from a broader section of the United States than in past years. We think 2019 will see the general trend of 2017 and 2018 continue.

“The current boom has seen development respond to demand rather than being primarily speculative,” remarked John Stater, the research manager of Colliers International’s Las Vegas office.

After several years of post-recession ebb and flow, Southern Nevada’s medical office market posted a second year of unambiguous growth. Southern Nevada’s medical office market has posted two years of strong demand. Inventory grew by 614,367 square feet over the past two years, while net absorption over the same period totaled 796,726 square feet. This brought the vacancy rate down from 15.6 percent in the fourth quarter of 2016 to the current rate of 12.1 percent; an impressive recovery after several years of shallow improvement following the Great Recession.

Mike Mixer, Executive Managing Director said, “The healthcare market still has significant challenges ahead of it, legislative, technological and demographic, but for now is on a better trajectory than it has been in many years.”

As multifamily completions headed over the 1,000 units per quarter level in 2018, Class B/C properties had some difficulty competing with newer properties. It probably does not help that asking rents in Class B/C properties increased right along with those in Class A properties, though at a slower pace. Net absorption in older properties was negative in 2018 through three quarters. It seems likely that Class B/C rents will plateau or decrease in older properties in the coming months. In the meantime, investors were bullish on Southern Nevada’s multifamily market, making this quarter the Valley’s best in terms of sales since the second quarter of 2016. Multifamily development may slow down in the second half of 2019. In the meantime, vacancy could continue to edge up while the market digests the new inventory introduced to the market in 2018.

Pop the corks, because it has been a very happy year for Southern Nevada’s office market. By year’s end, vacancy was heading down and net absorption and asking rates were heading up. Southern Nevada’s office market appeared to be a “baby bear” market – not too hot, not too cold, just right for a decade-old recovery. The industrial market in Southern Nevada boomed slowly and then all at once. So far, the office market’s improvement has been at a slow and steady pace. This pace could quicken in 2019 if economic fundamentals remain strong. There is little office space on the drawing board now, so an increase in demand for office space in 2019 could bring vacancy closer to the long-term average of 9 percent.

Despite headwinds from e-commerce and big box closures, Southern Nevada’s retail market performed well in 2018. Vacancy is still higher than it was twenty years ago, but it improved over 2018 and demand for retail space was strong. We think the retail market will match this performance in 2019, provided national economic fundamentals continue to be positive. Southern Nevada is still witnessing the movement of the middle class to the southern and western portions of the Valley, and this movement will have as much impact on the market in 2019 as those aforementioned headwinds. Southern Nevada’s retail market had a strong finish in 2018, posting 283,177 square feet of net absorption in the fourth quarter of 2018, the highest quarterly net absorption all year.

2018 was a solid year for tourism in Southern Nevada, though it did not quite equal the last two years. Still, Southern Nevada is on the cusp of a major expansion of its entertainment product, and as these venues come online, they should bring those visitor volume numbers up, as well as put Southern Nevada on track for a productive decade in the 2020’s.

You could say Southern Nevada’s hospitality sector in 2018 was better than the 10-year average, but down from the past two years. While this assessment is basically correct, it misses some important details. Visitor volume and room occupancy have decreased over the past two years after peaking in 2016, but gaming revenue, taxable sales and passenger traffic at McCarran International Airport were up over the same period. Southern Nevada looks to be experiencing a slight slowdown in post-recession growth, but not a significant reversal. Land sales were exceptionally strong in Southern Nevada in 2018, driven by renewed multifamily and industrial development, and the strongest new home sales since the end of the Great Recession. Developers are now pre-positioning themselves for development over the next several years, and investors are seeing many opportunities as well. Lack of available land is putting upward pressure on prices, and this could potentially slow land sales going into 2019, but for now the market looks as though it will remain strong.

Full report available for download here: https://www2.colliers.com/en/Research/Las-Vegas/2018-Q4-Las-Vegas-LVQR-Market-Research-Report

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About Colliers International Group Inc.

Colliers International Group Inc. (NASDAQ: CIGI) (TSX: CIGI) is an industry-leading real estate services company with a global brand operating in 69 countries and a workforce of more than 12,000 skilled professionals serving clients in the world’s most important markets. Colliers is the fastest-growing publicly listed global real estate services company, with 2017 corporate revenues of $2.3 billion ($2.7 billion including affiliates). With an enterprising culture and significant employee ownership and control, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting.

Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 13 consecutive years, more than any other real estate services firm. Colliers has also been ranked the number one property manager in the world by Commercial Property Executive for two years in a row.

For the latest news from Colliers International, visit Colliers.com, or follow us on Twitter: @Colliers and LinkedIn. To see the latest news on Colliers International in Las Vegas, follow @Colliers_LV.

For further information, please contact:

Courtney Goffstein, Marketing Manager
Las Vegas, Colliers International
Phone: 702-836-3710
Email: courtney.goffstein@colliers.com

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