Empty office space on rise in Southern Nevada,
but analysts see some hope

January 30, 2010 - The two-year recession is clearly taking a toll on Southern Nevada's retail market, emptying shopping centers and pinching consumer spending, though some real estate analysts see glimpses of improvement in fourth-quarter commercial reports.

Retail vacancy inched up to 10 percent during the quarter but remained within a narrow range throughout most of the year, Las Vegas-based Applied Analysis reported. It was 9.9 percent in the previous quarter and 7.5 percent in the fourth quarter of 2008.

Monthly asking rental prices dropped to $1.84 a square foot, down 11 cents from the third quarter and down nearly 30 cents from a year ago.

Applied Analysis principal Jeremy Aguero said he sees "some signs of light in a sea of darkness."

Back-filling has begun on select anchor spaces and further reconfiguration of second-generation space, or previously occupied retail stores, may act as a stabilizing factor as the market seeks a "sustainable equilibrium," he said.

Every sector of commercial real estate has been overbuilt. People are going to have to "accept reality" and the resetting of prices, Aguero said.

Commercial financing has become more difficult to find, but the pool hasn't gone completely dry, said Kyle Nagy, director of CommCap Advisors in Las Vegas. He was able to refinance $1.7 million in existing debt for Flamingo Arville Plaza through Correspondent Life Insurance Co.

The borrower was fortunate that the loan balance was low enough and the property value was high enough to secure a loan, he said.

"The issue is the property has to be well-occupied and stabilized," Nagy said. "It's very difficult to finance a center that's 60 percent to 70 percent leased. The bigger issue is not just finding a lender, but finding a lender that will give you what you need."

Only a handful of local and regional banks are lending, he said. A majority of commercial loans are coming from life insurance companies, one of the few financial sectors still lending. They include most of the major companies, such as State Farm, Allstate and Prudential.

Last year was undeniably challenging for Las Vegas retail property owners and tenants, CB Richard Ellis research and marketing manager Sara Dinwoodie said. She also sees a glimmer of positive news.

CB Richard Ellis reported 12.3 percent vacancy in the fourth quarter, down from the previous quarter and the first decline since late 2006, she said. It is up from 9.9 percent in the same quarter a year ago.

Net absorption, or the amount of space taken by retail tenants, turned positive in the quarter at 601,186 square feet, though it was down for the year. Target opened a store in Henderson, its second of the year in the Las Vegas Valley, while Home Depot and Staples opened stores in North Las Vegas. Ashley Furniture took over the former Levitz.

Las Vegas Review-Journal