LAS VEGAS (Jan. 21, 2020) – Colliers International | Las Vegas released its 2019 Q4 Las Vegas Market Research Report on Southern Nevada’s commercial real estate market. The report details current and future projections and trends expected this year.
Southern Nevada had a pretty good 2019, with some segments of the market doing better than others, but all segments improving. The debate rages on over whether a recession is in the cards for 2020.
There are definitely signs of slowing economic growth, but that does not in-and-of-itself portend negative growth in the future. The recent completion of a new North American trade agreement and progress on a new trade agreement with China could bolster economic growth in 2020, but one cannot know the future until it is the past, and sometimes not even then.
What does seem clear is that Southern Nevada’s hospitality-driven economy made some bold moves in 2019, and should see the fruits of this work in 2020. Las Vegas has added important new entertainment venues, and some big hospitality sales in the fourth quarter of 2019 suggest that at least a few major investors have some faith in the city’s future.
As 2019 wraps up, Southern Nevada can look back on another very successful year for its industrial market, though perhaps not as successful as in the past two years. A powerful wave of demand for warehouse/distribution space hit the United States in 2017, spurred by e-commerce and the desire for quicker delivery times. It is possible that in 2019 we are seeing signs that that wave is losing power.
Net absorption in warehouse/distribution properties, while remaining positive and healthy, has been decreasing (on an annual basis) since 2017. This is certainly no cause to panic but does suggest that supply is beginning to outpace demand. If this continues, vacancy should continue to increase in 2020 and asking rents should continue to decrease, though with the potential for development to begin shifting towards light distribution and light industrial properties.
“Southern Nevada’s industrial market posted 4.8 million square feet of net absorption in 2019, down from the 5.2 million square feet of net absorption recorded in 2018, a possible sign that the initial wave of demand for warehouse/distribution space may be slowing down,” remarked John Stater, the research manager of Colliers International’s Las Vegas office.
As multifamily vacancy rates have increased, the pace of new development has slacked. This is a pleasant show of restraint by developers. Rather than getting swept up in the hype, they are proceeding wisely and developing multifamily as it is needed. The downside to this slower development is a continuation of rent increases – good for landlords, but tough on tenants.
Over the past five years, Class B/C rental rates have increased from $732 per month to $895 per month. Rent growth in these older properties has thus outpaced inflation, and this gradual drawdown of affordable housing could have a deleterious impact on Southern Nevada’s economic growth in the future.
Executive Managing Director Mike Mixer said, “It looks as though multifamily development will pick up a bit in 2020 and rent growth has been slowing over the course of 2019. We think this trend will continue in 2020.”
Demand for Southern Nevada’s retail market hit a recent high in 2019, with net absorption totaling over 1 million square feet. It is no secret that the growth of e-commerce has been a significant challenge to brick-and-mortar retailers over the past few years.
“Big box” retailers have closed numerous locations in Southern Nevada, and more than a few pundits decided that retail real estate’s best days were behind it. Retail performance in 2019 has challenged these views, with retail vacancy decreasing in all submarkets in Southern Nevada, and in most retail types. It is possible that retailers have adapted to the new retail environment created by e-commerce, enabling them to expand once again.
Land sales prices increased to their highest level in years in 2019, producing a high dollar volume of sales, but cutting the total acreage sold from last year’s high. Higher prices for commercial and residential-zoned land meant that buyers paid more to get less. That state of affairs will ultimately result in higher asking rents and prices for the buildings constructed on that land, or landowners defaulting on land they purchased at too high a price.
Southern Nevada continues to add new citizens, so demand for residential land remains strong. Large tracts of industrial land at Apex create the illusion of low prices for industrial land generally, but outside of Apex industrial land prices are going up as well. Higher land prices may result in shortages of land in the hands of developers later, or a difficulty in attracting new residents and businesses in the future due to higher real estate costs.
While the rapid increase in available sub-lease space in Southern Nevada and the lackluster job growth in sectors associated with office space is worrying, the valley’s office market performed well overall in 2019. Vacancy continued to decrease, and asking rates are now on the rise. Net absorption was weaker in 2019 than 2018, but still positive.
In 2020, more than 700,000 square feet of office space is scheduled for completion, with 183,449 square feet of that space already under construction. Pre-leasing of this space is fairly strong, and thus its completion might prove that Las Vegas has a supply problem, rather than a demand problem. If the market does not respond to this addition of new office space, though, or the national economy slows down in 2020, Southern Nevada will be left with higher vacancy rates at the end of 2020.
After a bout with negative net absorption in the second quarter of 2019, Southern Nevada’s medical office market has enjoyed two quarters of positive net absorption. Unfortunately, it is also experiencing a larger trend of weaker demand since hitting a high in 2017. Job growth and taxable sales on health care have seen a similar draw-down, which probably explains real estate’s woes. We expect a similar performance in 2020, with demand either rising or falling slightly, but remaining positive.
2019 had a healthy tourism industry and was a major year for hospitality sales. Southern Nevada is well-positioned to hit new heights in 2020, with major new entertainment venues opening and new hospitality units on the way. The hospitality sales that occurred in the fourth quarter of 2019 are a clear sign that investors believe that Southern Nevada’s hospitality industry is on the right track and poised for future success.
The full report is available for download here: https://www2.colliers.com/en/Research/Las-Vegas/2019-Q4-Las-Vegas-LVQR-Market-Research-Report.
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