Las Vegas Sun

March 21, 2023

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Real estate quarterly:

Distressed properties a blight on office sector

A growing number of single-story office buildings constructed in the past two years are without tenants and facing foreclosure, according to Colliers International.

The brokerage firm reported the number of properties that have received a notice of default or are in some stage of foreclosure grew from 2.1 million square feet in the third quarter to 2.5 million square feet by the end of 2009. It stood at 460,000 square feet in mid-2009.

Most of these distressed properties are in the Class C category, or lower end wood-framed, of buildings, said John Stater, the research manager at Colliers in Las Vegas.

The buildings became popular with developers in 2006 and 2007. More than 2.7 million square feet were completed then with a vacancy rate averaging 24 percent. But in 2008, the vacancy rate in newly completed Class C properties jumped to 59 percent and those finished in 2009’s fourth quarter were 99 percent vacant, Stater said.

Colliers reported an overall office vacancy rate of 22.5 percent in the fourth quarter, up from 21.8 percent in the third quarter. Restrepo Consulting Group reported a vacancy rate of 24.2 percent when including subleased space. That’s up from 12.7 percent in 2007’s fourth quarter.

Commerce CRG reported a 20.8 percent vacancy rate.

More than 9 million square feet of 41.4 million square feet of office space are vacant. No new space was added in the fourth quarter, Colliers reported. Only 40,000 square feet were completed in the third quarter, the firm said.

Restrepo Consulting Principal John Restrepo said he expects the office vacancy rate to keep rising well into 2011 because of the weak job market. Based on the amount of space being absorbed, a four-year supply exists, and it will take that long to get down to 10 percent, he said.

Colliers reported the highest vacancy rate was in the southwest valley at 31 percent, followed by near the airport, 25 percent, and the northwest valley, 24.6 percent. The lowest vacancy rate was 11 percent in downtown Las Vegas.

High-end Class A office space had the highest vacancy rate at 30.3 percent, while medical offices had the lowest vacancy rate at 10.3 percent, Colliers reported.

Health services, insurance services, legal services and travel and leisure companies accounted for 44 percent of the new office tenants in Southern Nevada, Stater said.

Rents fell to $2.27 per square foot in the fourth quarter, down 6 cents from the third quarter. Rents have fallen since 2007’s fourth quarter when the recession began, he said.

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