Tuesday, Sept. 8, 2015 | 2 a.m.
Las Vegas’ office market is still slumping from the recession, and at first glance, the pricey new building in Downtown Summerlin seems bogged down with it.
The office sector has a roughly 20 percent vacancy rate, higher than all other types of commercial property, and the nine-story building in the middle of the outdoor mall at Sahara Avenue and the 215 Beltway is just 54 percent leased.
But according to management and other real estate pros, the once-mothballed building is faring well, considering the market it’s in.
“It’s nice to see that they’re getting some pretty decent numbers out there,” said Cathy Jones, owner of brokerage firm Sun Commercial Real Estate.
The office building, dubbed One Summerlin, has some of the more expensive rental rates in the valley, and unlike other properties that command top-dollar, it’s not centrally located near the Strip and McCarran International Airport. With office construction slow-going, it’s also one of just a handful of higher-quality, speculative office projects to recently open or be underway.
It opened in April, months after the retail space debuted last fall at the 106-acre Downtown Summerlin, and management aims to have the building fully leased by next summer.
Developer Howard Hughes Corp. disclosed the current leasing total in a report last month. It also said that 82 percent of Downtown Summerlin’s retail space had been leased.
“We’re really pleased with the results so far,” said Kevin Orrock, president of the Summerlin master-planned community for Howard Hughes, when asked about the office tower.
Listing broker Randy Broadhead said the building is “outpacing the market,” and that if anyone asked him two years ago — around the time Howard Hughes revived the mixed-use project — how much space he’d rent out before One Summerlin opened, he’d have said “zero.”
“As you know, this is not a good market overall,” said Broadhead, a senior vice president with CBRE Group. “Most landlords are struggling.”
One Summerlin has a smaller pool of potential tenants than other properties, in part because of its price, said broker Dan Palmeri, a director with Cushman & Wakefield Commerce Real Estate Solutions.
Monthly rents range between $3.10 and $3.20 per square foot, Broadhead said. That’s well above the valley-wide average of $2.62 for other Class A space, and even further above the market average of $1.91 for all space, according to brokerage firm Colliers International.
There is ample parking at Downtown Summerlin, but neither a garage nor a parking lot is adjacent to the office building, and that was “pretty much a deal-killer” for one of Palmeri’s clients, he said. But what the building lacks in easy parking, it makes up “big time” with amenities, he said.
If a developer opened the same tower without as many shops and restaurants nearby, “I don’t think you’d be even close to that number,” he said of the leasing total.
Developer Jeff LaPour completed a three-story office building in the southwest valley in October 2008 — the month after Lehman Brothers collapsed, helping set off the national financial crisis. He had figured it would take about a year and a half to rent all the space, but it wound up taking 2 1/2 years.
LaPour sold the building, fully occupied, last year for $17.35 million.
He said One Summerlin is a relatively low-risk project, given that it’s owned by a publicly traded company — Dallas-based Howard Hughes had a stock-market value of $4.9 billion as of Friday — and is “a small component of a very big project.”
Still, he said the lease-up shows “the value” of a mixed-use, pedestrian-friendly development, and management is landing big rents without giving many concessions, such as money for interior work or months of free rent, as landlords often do in Las Vegas.
“They’re doing well,” he said.
Asked if he’s offering those perks, Orrock said, “We’re competitive, but we also have a very unique product.”
For years, that product was an abandoned steel skeleton, one of the most visible scars of Las Vegas’ real estate bust.
Previous owner General Growth Properties mothballed the retail and office project — then known as Shops at Summerlin Centre — during the financial crisis in fall 2008. The partially built property sat untouched until Howard Hughes, a spin-off from General Growth, resumed construction in 2013.
The new owners probably didn’t think Las Vegas needed another office building, but since they wanted to finish the mall, they “had to do something” with the office structure, said John Stater, Las Vegas research manager for Colliers.
The economy is recovering but “not on fire,” Stater said, and although leases are being signed and landlords are raising rents a bit, he’s not seeing “an explosion in demand” for offices.
Amid the bloated vacancy rate, there isn’t much speculative office construction nowadays, but Howard Hughes has had “respectable demand overall,” said Brian Gordon, a principal with Applied Analysis.
“These things take time,” Gordon said.
One tenant is builder William Lyon Homes, which is renting about 15,000 square feet on the fifth floor and about 6,000 square feet of retail space in Downtown Summerlin for a design studio.
The company had been in an office near McCarran airport for 18 years, and when looking for a new one, executives wanted “a location that reflects” the company and that had space nearby for a design studio, Nevada division president Mary Connelly said.
She looked at a number of options but “everything else paled in comparison” to Downtown Summerlin, she said. Shoppers see the design studio, and she said her employees “are thrilled” with the amenities.
Connelly also said it was “kind of creepy” walking to a dark parking lot after work at the old office.
“There’s life here,” she said.