Friday, Nov. 6, 2009 | 3 a.m.
The construction crane only a few years ago was jokingly called the state bird of Nevada, but that era of growth has passed and by the second quarter of 2010 commercial construction in Las Vegas will come to a virtual halt, according to local analysts.
Outside of CityCenter and development along the Strip, Las Vegas research firm Applied Analysis reports there are nine commercial projects of consequence under construction in Southern Nevada. Once those projects wind down early next year, there’s unlikely to be anything in the pipeline and development will essentially cease, said Jake Joyce, an analyst with Applied Analysis.
“With limited projects remaining under construction, the build-it-and-they-will-come mentality has gone the way of pillbox hats, Benny Goodman and your grandmother’s dance card,” Joyce said. “Essentially, commercial is following the same path as tourism. It is about supply and demand.”
With the completion of most of CityCenter in December, much of the talk has been about analysts suggesting there won’t be another major casino project on the Strip for another decade. But commercial real estate analysts said what happens to the Strip trickles down to the rest of the development community.
With commercial vacancy rates already at record levels, demand weak because of the economy and job market, and with credit hard to obtain, the chance for new projects is low. Las Vegas currently has the same amount of space occupied today as it did in 2006, and there’s been millions of square feet added since then.
“It will be pretty bad,” said John Restrepo, principal of Applied Analysis. “We are going to have a drought of commercial construction for a number of years until we burn through this inventory.”
The office market has 11.2 million square feet of empty space with a vacancy rate of nearly 23 percent. That equates to about five years of inventory, Joyce said.
With the unemployment rate in Las Vegas at 13.9 percent and rising, there won’t be job creation to spur demand for office and industrial space, Joyce said.
There are 13 million square feet of vacant industrial space, which is about two years of inventory. The industrial market is hurt by the struggling construction industry, Joyce said.
The retail sector has 5.1 million square feet of vacant space, a supply of about two years, Joyce said.
With foreclosures expected to increase in 2010, that will reduce the value of already vacant space and make it much more difficult for developers to build new product that can be competitive, analysts said.
Applied Analysis tracks office and industrial construction projects of at least 5,000 square feet and retail projects of 30,000 square feet and above as long as they have a major anchor such as a grocery store.
By that definition, the projects it reports under construction off the Strip are:
• Warehouse facility — 412,000 square feet at the southwest corner of Sunset Road and Torrey Pines Drive.
• Distribution center — 50,000 square feet on Trade Drive in North Las Vegas.
• Tuscano Medical Park Building C — 48,047 square feet on Jeffreys Street.
• Tivoli Village at Queensridge — 200,000 square feet of office on Alta Drive.
• Corporate Center at the Curve — 130,000 square feet of office on West Teco Avenue.
• Campos Office Building — 84,184 square feet of government office on Bonanza Road.
• Caroline’s Court — 258,210 square feet of retail on U.S. 95 and Durango Drive.
• Tivoli Village at Queensridge — 450,000 square feet of retail at Rampart Boulevard and Alta Drive.
• Phase two of retail development totaling 101,550 square feet at Horizon Ridge and Green Valley Parkways.
The list is telling because in early 2007 — when commercial construction was booming — there were 75 to 100 projects under construction, Joyce said.
The pipeline is shrinking because Applied Analysis has moved at least three-dozen office projects from its list of planned to on hold because they are no longer being marketed, Joyce said. That doesn’t include other projects under construction that
have already stalled because their construction loans expired and banks won’t extend them.
“The banks are trying to shore up their balances and it doesn’t make sense to loan more money on a project that is going to sit vacant and they are eventually going to take back,” Joyce said.
Restrepo said it’s unlikely there will be no projects under construction in 2010 but added it’s more likely that the stalled projects acquired by developers are the ones to get under way in addition to build-to-suit projects for companies.
“We won’t see much if any new spec commercial development until we see vacancies below 10 percent for an extended period of time,” Restrepo said.
That’s quite a comedown for a region that had twice the construction employment as the national average, and no one ever expected a slowdown of this magnitude, Restrepo said.
“Southern Nevada went through a long stretch having a disproportionate share of its job base in construction, at least by national standards. Many in the community started to believe that this reflected a normal and sustainable job base. The recession has dramatically shown how transitory construction employment really is,” Restrepo said.
In its latest quarterly report, the Associated General Contractors of Las Vegas, said the number of commercial building permits issued in September was 19 with a value of $10 million. Between September 2007
and September 2008, the value of commercial permits averaged $130 million per month.
Steve Holloway, the AGC’s executive director, said it may be another two to five years before commercial construction picks up in the private sector and that the hope for the near term is expanded government spending.
The AGC, which currently has 650 members, lost about 100 construction company members in the past year and expects to lose another 100 this year, Holloway said.
Many of those companies have either
gone out of business or closed shop in Las Vegas and are returning to the state from which there operations were based, Holloway said.
The slowdown in construction has also prompted an exodus of construction workers because about 15,000 of the 50,000 union hall workers are considered “travelers” in that they relocate to markets temporarily for work and return home when there no longer is work available, Holloway said.
Construction industry employment dropped to 69,500 in September, down from 92,600 in September 2008, according to the AGC.
“Once CityCenter is done, that is going to be it for a while,” Holloway said. “It is going to be ugly. There is so much supply that it will remain idle for a while. Unless some huge project magically takes off, I think Southern Nevada is going to remain in this recession two to five more years.”
Holloway said it won’t be enough for tourism to push Las Vegas out of its recession because construction is the second largest industry in an economy predicated on growth. That industry pays more than 30 percent of sales and use taxes, he said.
“Unless construction recovers both nationally and locally, we are not coming out of this recession no matter what gaming does,” Holloway said.