Uncertainty abounds, but real estate continues to perform well
Southern Nevada’s commercial real estate shows strength and promise
Las Vegas, NV (July 11, 2019) – Colliers International | Las Vegas today released its 2019 Q2 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. The full report is available for download here: https://www2.colliers.com/en/Research/Las-Vegas/2019-Q2-Las-Vegas-LVQR-Market-Research-Report.
Southern Nevada’s commercial real estate performance was, overall, quite positive in the second quarter of 2019, though some sectors, like industrial and retail, were better than others. Likewise, while most measures of the local economy remain positive, there are signs that the economy is slowing down.
Southern Nevada does not appear to be uniquely vulnerable to a recession now, compared to its status before the Great Recession. In those days, a housing bubble loomed over an otherwise vibrant economy, and Southern Nevada may as well have been the symbol of that housing bubble. Whatever economic storm will greet us in 2020, Southern Nevada’s commercial real estate market should be better positioned to weather a storm than it was a decade ago.
Southern Nevada’s industrial market showed growth in the first two quarters of 2019, though much of the Valley’s net absorption came from just two large industrial build-to-suits. The second half of 2019 should see the completion of an additional 5.1 million square feet of industrial space, with approximately 31 percent of that space pre-leased. Industrial vacancy rates will continue to increase in the second half of 2019 unless leasing activity picks up.
“Southern Nevada’s industrial market posted 1.8 million square feet of net absorption in the second quarter of 2019, with the bulk of that net absorption coming from two build-to-suit projects in North Las Vegas,” remarked John Stater, research manager of Colliers International’s Las Vegas office.
When retail inventory grows, occupied square footage usually follows. This is because newly completed anchored retail centers rarely open without their anchors in place, and those anchors occupy anywhere from 50 to 90 percent of the center. So far, 2019 has seen three new retail centers completed, and the second phase of an existing center completed.
Net absorption has reacted as we would expect. But 2019’s net absorption cannot be explained entirely by the completion of new retail centers. Somewhat surprising, given the recent trend of e-commerce expansion seemingly at the expense of traditional retail, is the uptick in retail demand in Southern Nevada. Several large spaces leased or sold in the first half of 2019, sending vacancy to its lowest level in a decade. We think the second half of 2019 will see positive net absorption and vacancy dropping even lower.
Mike Mixer, EVP said, “At midyear, Southern Nevada’s retail market had 805,953 square feet of net absorption, putting 2019 on track to be retail’s best year in a decade.”
Investors remain interested in Southern Nevada’s multifamily market, with sales in 2019 on pace to beat 2018’s sale volume. Although asking prices for new and existing single-family homes and condos continue to increase, it is possible that multifamily rents, especially in Class B/C product, have increased too quickly.
Demand for Class B/C multifamily faltered in the past two quarters and rising rental rates could be partially to blame for this trend. We think demand for multifamily will remain healthy in Southern Nevada in 2019, but price increases in older properties may have to slow down or reverse to help them compete with newer properties.
Despite a relatively low number of land sales and acreage sold so far in 2019, high prices for land drove sales volume to the highest level we have seen in seven years. Some of this boost in sales volume was due to a land sale that took place in the Resort Corridor, but the overall trend was one of rising land prices since 2016.
Southern Nevada has returned to growth mode, especially in the areas of warehouse/distribution buildings and multifamily projects, and both developers and investors seem willing to pay a premium for the vacant land that remains available in Southern Nevada. This is great news for land sellers, but there are already rumblings of the difficulty in getting certain projects to pencil given the higher prices these sellers are demanding.
A rare building fire and a dearth of new completions caused the Valley’s office inventory to shrink in the second quarter of 2019. With significant net absorption posted in the two previous quarters, Southern Nevada’s office market looked poised for a major expansion in 2019.
This quarter’s rather muted net absorption figure does not kill the chances for improvement in the second half of the year but does dampen expectations. On top of the lower than expected net absorption there was a sharp increase in available sublease space. At this point, we are forced to take a “wait-and-see” posture concerning the market’s immediate future.
Tourism fundamentals, which softened in 2017 and 2018, showed improvement in 2019. Numerous improvements to the local hospitality market, including new hotels, entertainment venues, convention space and stadiums are coming soon, and should boost these numbers even further. Sales were light in the first two quarters of the year but have the potential for improvement.
After several quarters of growth, Southern Nevada’s medical office market took a step back in the second quarter of 2019. While pent-up demand from the recession and the healthcare legislation merry-go-around probably contributed to 2018’s strong demand for medical office space, it is also notable that 2018 saw the first medical office construction in Southern Nevada in many years. It is possible that the softer demand experienced in 2019 was the result of a lack of desirable medical office space in the Valley.
The full report can be found at https://www2.colliers.com/en/Research/Las-Vegas/2019-Q2-Las-Vegas-LVQR-Market-Research-Report.
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