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September 20, 2019

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Real estate quarterly:

Industrial vacancy rate soars in Southern Nevada

The lack of demand for industrial space has pushed the vacancy rate to its highest point in a decade.

Grubb & Ellis reported an 11.3 percent vacancy rate at the end of the first quarter, up from 7.4 percent in March 2008. The vacancy rate stood at 9.9 percent at the end of 2008.

Most of the increase isn’t attributed to new space coming on line but caused by projects completed a year ago and remaining unleased for several months, the firm reported.

Lease rates declined in the first quarter with research and development space falling to levels not seen since 2006’s first quarter, said Dave Dworkin, a research analyst with Grubb & Ellis.

Landlords are trying to entice tenants with generous improvement allowances, and reductions in lease rates are becoming commonplace, he said.

Many tenants, rather than incur the cost of moving, are renewing leases, he said. Those who are having trouble affording their rents are subleasing a portion or all of their space and moving to a smaller building. Some are requesting lower lease payments, Dworkin said.

CB Richard Ellis

The industrial vacancy rates reached 8.03 percent in the first quarter, up from 6.1 percent a year ago, according to brokerage firm CB Richard Ellis.

Vacancies were steady across all parts of the valley with the exception of the southwest where vacancies increased by more than 600,000 square feet because of the completion of Arroyo South.

The average lease rate dipped to 68 cents per square foot, down 7 cents since the fourth quarter and 12 cents since the first quarter of 2008, the firm reported. In the southwest, the asking lease rates dropped 10 cents since the end of the year, the firm reported.

North Las Vegas, the second largest industrial market, leased the majority of the 660,000 square feet of space in the first quarter because of the price: Its average lease rate is 57 cents per square foot, according to the brokerage.

Despite the recession, the vacancy rate for industrial space is expected to level off, the firm reports. The one exception would be the increase of sublease space.

Lease rates will continue to decline, but they will slow.

The southwest valley had the highest rents at 87 cents per square foot. The airport area had average lease rates of 75 cents per square foot.

Colliers International

Colliers reported an industrial vacancy rate of 11.1 percent, a 4.2-point increase over the first quarter of 2008.

Vacant space has increased for the past eleven quarters from a low of 3.1 percent in the second quarter of 2006, the firm reported.

Colliers reported the highest vacancy rate was in the northwest valley at 24.5 percent and the lowest rate was 8.5 percent in eastern Las Vegas.

Many of the leases signed during the first quarter were small in size and short in term, according to the brokerage firm. It’s part of the struggle with low demand that has caused developers to put the brakes on. Warehouse and distribution space had the lowest vacancy rate at 6.3 percent, but the demand for light distribution space was hurt by problems in the leisure, hospitality and retail sectors, the firm reported. For example, light distribution space in the southwest valley, which services the casinos, saw its vacancy rate go from 8.6 percent to 17.1 percent.

Most of the deals struck with tenants were from people downsizing or bargain hutting rather than new companies moving into the valley, Colliers reported.

“These small leases were overwhelmed by the large number of new availabilities that entered the market in the first quarter of 2009, keeping industrial vacancy on the rise,” the firm reported.

Part of the reason is that employment in the industrial sector is declining. Between February 2008 and February 2009, more than 15,000 industrial jobs were lost, the firm said.

A total of 739,048 square feet of industrial space was completed during the first quarter with most of it light distribution. Construction on most of this space occurred between February and June 2008 before it became apparent that the nation was in recession, the firm noted.

Since then, more than 300,000 square feet of industrial space started construction. The vacancy rate in newly completed space was 96 percent in the first quarter.

Some of the space completed was Sunset Pointe Industrial Center, 104,000 square feet; the Arroyo South Business Center, 380,000 square feet; Sun Arville Business Center, 50,000 square feet; the Seven Series at Hughes Airport Center, 103,000 square feet; and Phase 1 of the Buffalo/215 Business Park, 73,000 square feet.

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