LV markets expected to grow in 2004

January 16, 2004 - The Las Vegas commercial markets remained relatively stable throughout 2003, and industry watchers said there should be growth in local markets as the economy both locally and nationwide improves. Numbers differ between various brokerage and research firms because of research methods used.

Office - David Sherer, senior vice president of Grubb & Ellis' office division, said a number of things will contribute to an improvement in the office market in 2004. But many brokers caution the vacancy rates may increase slightly during the first half of the year as office projects are completed.

Job growth, growth in businesses and this year's presidential election will all help the local office market, Sherer said.

"We are starting to see the results of 2003, a moderate job-growth pickup which will further the gradual increase in occupancy levels," he said. "If we had not seen a gradual recovery in 2003, we wouldn't be seeing a job growth now."

Sherer said companies probably won't rush to occupy new space, despite an improvement in the local and national economy.

"I think job growth will be from within and, to a limited extent, we will see a gradual increase of companies locating to Las Vegas," he said. "I think in the big scope of things, companies are still treading cautiously."

Grubb & Ellis reported a 1.4 percentage point decline in valleywide office vacancies in the fourth quarter to 13.5 percent from 14.9 percent in the third quarter.

Sherer said that number will probably go up in the first quarter of 2004 and will eventually stabilize around 12 or 13 percent. He said the decline could be attributed to numerous new leases in the southeast part of the valley at the end of last year.

Restrepo Consulting Group LLC reported that the valley ended the year with a 13.6 percent office vacancy, up slightly from the 2002 year-end vacancy of 13.2 percent.

The average asking lease rate for office space in the valley at year-end 2003 was $1.90 per square foot, up from $1.84 at year-end 2002, Restrepo Consulting Group reported.

John Restrepo, principal of Restrepo Consulting Group, said the uptick he tracked in the office market vacancy is because of people taking advantage of low interest rates to buy their own office buildings.

"It is the renter versus the owner, and we are shifting a bit to the owner-occupied," he said. "The higher vacancy rate does not indicate a weak office market, but a moving toward owner-occupied space."

Applied Analysis reported that the office vacancy in the valley dropped slightly to 10.6 percent in the fourth quarter from 10.8 percent in the third quarter 2003. Jeremy Aguero, principal at Applied Analysis , said there are several projects that will be completed early this year in the southwest and Henderson that could cause vacancy rates to increase.

"The swell of new employment should balance that out, but it's a timing issue," he said. "The instability we may see in the early portions of the year is not indicative of an imbalance."

CB Richard Ellis, Las Vegas reported an office vacancy rate of 14.7 percent, little changed from the third quarter's 14.6 percent.

Industrial

Pat Marsh, vice president in the Colliers International, Las Vegas, industrial division, said activity has begun to pick up in the industrial market as the economy improves.

"I'm expecting it to continue this first quarter," he said. "We're starting to see big institutional companies come to town, lease space or grow."

Marsh said that during the past few years Las Vegas' industrial market has been more of a "mom-and-pop" market rather than a place where large institutional companies move to or expand into the market.

He said many industrial users still prefer owning their own small, freestanding buildings than leasing a building.

Restrepo Consulting Group, which works with Colliers to analyze the market, reported the industrial vacancy at the end of 2003 at 10.1 percent compared to 9.7 percent in 2002. The average asking lease rate for industrial space in 2003 was 56 cents per square foot, a 12 percent increase from the 50 cents per square foot in 2002. Continue »

"The markets are healthy. They took a little dip from last quarter, but they are getting better," Restrepo said. "For the first quarter '04, the economy is still stabilizing a little bit, but we are still in a transition period."

Restrepo said that land prices in the past 12 to 18 months, combined with lenders restricting the funding of speculative projects, have limited speculative development in the valley, which is reflected in the amount of planned industrial space, he said.

At the end of 2003, construction was planned to begin on 3 million square feet of industrial space compared with 5.9 million square feet at the end of 2002.

Applied Analysis reported that the fourth quarter 2003 vacancy rate was 10.6 percent, up from 9.6 percent in the third quarter.

Aguero said that while the past 12 months have been a volatile year for the industrial market, overall results were promising. He did caution that land prices would be an escalating issue for developers in 2004.

Grubb & Ellis reported a fourth-quarter 2003 industrial vacancy rate of 10.9 percent, down from 11.2 percent in the third quarter. Expansions and renovations on the Strip should hold the Las Vegas industrial market steady in 2004, Grubb & Ellis reported.

Retail

Applied Analysis reported that the Las Vegas retail market remained strong throughout 2003, with vacancy rates remaining flat at 3.5 percent in the fourth quarter.

New additions to the market added 546,000 square feet, with 542,000 square feet of space absorbed through the end of the quarter. About 1.7 million square feet of retail space is under construction valley wide and 3.7 million square feet is in the planning stages, Applied Analysis reported.

While retail development took place throughout much of the valley, most of it occurred in the southwest.

"Certainly the amount of retail space in the southwest is extremely robust," Aguero said. "If there is a potential for overbuilding, that's where it is. That having been said, the retail products coming online have been incredibly successful and in many cases there is an additional demand."

Development in the southeast has been met with stronger-than-anticipated demand, he said. Asking rents are among the highest in the valley, at $1.82 per square foot.

Restrepo Consulting Group reported that the retail vacancy rate at year end 2003 was 4.1 percent, compared to 2002's year-end vacancy rate of 3.1 percent.

"Really (the increase) is more a function not of weak demand but of the supply that entered the market," Restrepo said. "With all the supply it is a surprisingly low vacancy, which is driven by strong demand and population growth."

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Article Copyright ©: J. Shubinski, In Business Las Vegas