Las Vegas, NV, 4/29/2016
- After a very impressive 2015, all eyes were on Southern Nevada’s
industrial market for the beginning of 2016. It did not disappoint. First quarter performance saw the
industrial vacancy rate at 5.6 percent, 0.1 point higher than at the end of 2015, due primarily to a new
speculative industrial building that was recently completed. Net absorption in the first quarter was
900,732 square feet, higher than one year ago, and the asking rental rate increased to $0.65 per
square foot on a NNN basis.
“We anticipate that the demand will hold steady for the industrial market in 2016,” said John Stater
research manager of Colliers International’s Las Vegas office. “Asking rates are estimated to continue
to increase, especially in the light distribution and light industrial sectors, and proposed development
will likely diversify.”
Aside from the industrial market, which added more than 1 million square feet of new product to its
inventory in the first quarter, Southern Nevada’s multifamily market is also in a heavy expansion phase.
Over 2,000 units of multifamily were completed this quarter, and another 1,600 units slated for
completion during 2016. This is the largest expansion of the multifamily market in more than 5 years,
and it has also driven vacancy up to 4.9 percent. As in the industrial market, this minor increase in
vacancy has not impacted rent, with the average asking rent for Southern Nevada multifamily
increasing to $925 in the first quarter of 2016.
Southern Nevada’s hospitality market, the engine of the Valley’s growth, continued to grow and
diversify in 2016. Visitor volume is on par with 2015, and gaming revenue continued to decrease
despite increased visitor spending. Since 2014, more than 3,000 rooms have been removed from
inventory, primarily in Downtown, the “Strip,” and in the Resort Corridor. This is proving to be beneficial
to operators in those submarkets because it is increasing room occupancy. This, in turn, may stimulate
future “Strip” development, not only at Genting Group’s Resorts World Las Vegas, but also at Wynn
Resorts, which recently announced a planned 1,000 room expansion projected to open in 2020. Nongaming/
hotel expansion also continues on the “Strip”, with the recent completion and opening of the TMobile
“2016 will see some inventory growth, with more possibly on the way in 2017,” said Mike Mixer
executive vice president of Colliers International’s Las Vegas office. “However, in the meantime expect
the existing resorts to reap the benefits.”
Southern Nevada’s office market recovery was a long time coming and appears to have finally taken
root. The past two years have seen over 2 million square feet of net absorption, bringing vacancy down
from almost 20 percent to 16.7 percent. 2016 will not be without inventory expansion, as 325,000
square feet of new office space is now under construction. Much of this is pre-leased; therefore the
impact should be minimal. This signals another strong year of net absorption, more than likely in the 1
million square foot range. Further, vacancy rates could fall to 15 percent, which would count as
normalized vacancy given the altered expectations of the post-Great Recession era.
The recovery of Southern Nevada’s medical office market after the Great Recession has been rough
and unstable. In 2015, it looked as though, despite two weak quarters, the recovery was picking up
steam. After three weak quarters in a row, however, the data tends to point to more of the same – two
steps forward, one step back. The professional office market followed a similar trajectory, and now
appears to be in a strong recovery. Perhaps there is a possibility that the medical office market will
follow suit. There are also two significant headwinds – competition from other types of commercial real
estate, and market distortions created by the ACA. We remain optimistic that higher spending on
healthcare is not entirely the result of increases in prices and deductibles, and healthcare employment
growth will translate into more demand for medical office space over the remainder of 2016.
With five big box leases in the first quarter of 2016, one might be tempted to credit the quarter’s strong
performance solely to large retailers. Those five new big box tenants added up to 324,382 square feet,
which is impressive, however, it is offset by 227,411 square feet of newly vacated big box space in the
Valley. This means that the lion’s share of net absorption, 66 percent was due to expansion by smaller
retailers. This makes Southern Nevada’s current retail expansion widespread and hopefully,
After analyzing the data from the past four quarters, it shows that Southern Nevada’s economy should
continue to grow through 2016. Economic growth may slow due to national and international
headwinds, but a local recession is unlikely. That means that the market will likely continue its
expansion in industrial and multifamily markets, and continue its recovery in other areas. As recovery
continues, it should stimulate more development – with light industrial space the most likely segment to
see renewed development in the next year.
The full first quarterly report of 2016 can be downloaded at: http://www.colliers.com/en-us/lasvegas/insights/marketnews/lvqreport
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