Colliers International | Las Vegas Releases Q3 Market Research Report
LAS VEGAS (Oct. 23, 2019) – While there are some signs that Southern Nevada’s commercial real estate market is slowing down, at least in some sectors, the overall picture remains one of growth.
Southern Nevada’s warehouse/distribution market seems to be the gift that just keeps giving. Warehouse/distribution net absorption has been on a run since the first quarter of 2013, averaging almost 2 million square feet per quarter. We owe this run to the reconfiguration of the nation’s logistics system due to e-commerce and its promise to deliver anything anywhere within days, if not hours.
Whether this is sustainable is a question for the future; in the present, companies are building and occupying warehouse/distribution projects at a fever pace, and for now that activity is producing spectacular results in Southern Nevada.
“We think industrial’s pace of growth will continue as long as the overall economy, and especially consumer spending, continues to grow,” remarked John Stater, the research manager of Colliers International’s Las Vegas office.
The retail market in Southern Nevada has had a healthy year, and it looks as though 2020 might not be too bad either. Taxable sales continue to be very strong in Clark County, and the retail properties scheduled for completion in 2020 exhibit a high level of pre-leasing. Matching 2019’s net absorption might be difficult in 2020, but it looks as though 2020 will continue the trend of positive net absorption and decreasing vacancy rates.
Mike Mixer, executive managing director said, “Third quarter demand for Southern Nevada’s retail market did not quite match the second quarter’s very strong net absorption but remained solid.”
At midyear 2019, it appears the first wave of multifamily development has ended. 2018 saw over 3,000 new units of multifamily completed, while 2019 has so far only seen inventory expand by 210 units. Net absorption also fell dramatically in 2019 compared to 2018. While development decreased in 2019, investments remained strong, though still below the peak investment year of 2016.
At midyear, 2019 was on pace to match 2018 in terms of units sold and total sales volume. If there was anything puzzling about the multifamily market, it was the way in which older properties struggle to compete with new Class A properties despite offering much lower rental rates. The excellent performance of Class A properties probably guarantees that a new wave of multifamily completions will begin soon.
While industrial and commercial lots have underperformed in 2019, the residential land market is doing very well, at least in terms of sales volume. The residential sector is not poised to beat 2017 in terms of acreage sold but has matched 2018’s annual sales volume in just three quarters. Residential land prices have increased from $6.41 psf in 2018 to $11.32 psf in 2019. Moreover, residential land prices averaged $6.56 psf from 2014 to 2018, making 2019’s figure very significant.
Developers have complained this year about the difficulty in making their planned projects pencil given higher construction and land costs. Given the increase in residential land prices occurring now, one must wonder if we will see a land shortage develop over the next five years.
Southern Nevada’s office market is flashing two signs of potential trouble down the road. The first is the rapid expansion of available sublease space in the market, and the other two quarters of decreasing net absorption. It is also worth noting office-related job growth has also slowed over the past year.
Almost 460,000 square feet of new office space is scheduled for completion over the next four quarters. Pre-leasing is strong in these projects, and they may just prove that Southern Nevada’s demand problem was really a supply problem, with a lack of desirable office space on the market hampering growth. If this does not prove to be the case, we should expect to see vacancy rates increase over the next year.
Tourism fundamentals in Southern Nevada continued to show improvement in the third quarter of 2019, after a notable slide in 2018. With numerous new entertainment and hospitality venues on the way in 2020 and 2021, Southern Nevada should be well-positioned to hit new heights in the near future, provided the national economy cooperates.
Hospitality property sales have been weak in 2019, the weakest they have been in four years, but investors and operators might renew their interest in the “Entertainment Capital of the World” as the Valley’s hospitality industry continues to diversify and expand.
While Southern Nevada’s medical office market rebounded from its dip into negative net absorption in the second quarter, it remains less robust than it was in 2018. Net absorption is generally lower this year than last, but no significant medical office development is expected in 2020.
The market seemed to get a boost from new construction in 2018, thus the current decrease in demand could be a matter of the lack of new medical office developments in 2019 and future development in 2020. In other words, it might take new construction to get the market out of its current slump.
The full report can be found at https://www2.colliers.com/en/Research/Las-Vegas/2019-Q3-Las-Vegas-LVQR-Market-Research-Report.
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