Las Vegas, NV, 7/21/2016
- Colliers International Las Vegas announced today the release of their second quarter market reports. While Southern Nevada’s commercial real estate market showed some softening at the mid-point of 2016, it remained positive overall. The industrial market continued to expand, posting slightly lower net absorption than in the previous quarter, but still enough to push the industrial vacancy rate down to 5.5 percent. The average asking rental rate for industrial space dropped at mid-year to $0.62 per square foot on a monthly basis, the first such drop in four quarters.
“We think net absorption will remain positive for the remainder of 2016, but will not keep up with new completions,” remarked
, the research manager of Colliers International’s Las Vegas office.
The multifamily market, which has seen a development explosion alongside that experience in the industrial market, is also handling the expansion well. With 473 new units of multifamily added to the Valley’s inventory, Class A multifamily vacancy increased to 5.0 percent. This was offset by the decrease in Class B/C vacancy, to a very low 3.4 percent. Overall vacancy stood at 4.2 percent. Rental rates continued to rise, pushed up as much by the strong demand for multifamily as by the completion of new Class A buildings. Population in Southern Nevada continues to increase, and those additional households, approximately 43 percent of them renters, will keep the multifamily market strong.
At mid-year, 2016 is proving that Las Vegas’ hospitality market is still on a win streak. Visitor volume in the first four months of 2016 is an improvement over the first four months of 2015, and room occupancy, average daily room rate (ADR) and revenue per available room (RevPAR) are up as well, year-over-year. Southern Nevada’s Resort corridor continues to grow and diversify, with such recent additions as TopGolf International’s four-story golf entertainment complex at the MGM Grand and the 20,000 seat MGM Resorts International/T-Mobile Arena behind New York-New York, not to mention the planned $75 million renovation of Caesars Palace’s original Roman Tower, a $47 million renovation of the Thomas & Mack Center, the expansion of the Las Vegas Convention Center, plans for a new tower at the Wynn Las Vegas and the first phase of Resorts World Las Vegas. Hospitality sales have softened in 2016 compared to the past two years, possibly as investors assess the success of these new developments.
, Executive Managing Director for Colliers International Las Vegas said, “The market now appears to be taking stock and preparing for the next phase, which may involve inventory expansion to go along with the entertainment venue expansion that has occurred since the end of the Great Recession.”
Southern Nevada’s office market extended its recovery in the second quarter of 2016, again posting positive net absorption. Demand for office softened slightly in the second quarter, and job increases are not translating into the demand increases as we would expect, but the office market is still on track to reach approximately 1 million square feet of net absorption in 2016, and thus to approach a vacancy rate of 15 percent by year’s end.
Southern Nevada’s medical office market got off to a bad start in 2016, with two quarters of worsening net absorption and rising vacancy. The problem appears to be increased competition from non-medical office real estate, significant restructuring in the real estate needs of healthcare practitioners, and market distortions created by the federal government. If current growth in healthcare employment and spending does not turn demand around for medical office space, then it is likely that the “new normal” for medical office space will be high vacancy for the foreseeable future.
The second quarter of 2016 saw negative 36,167 square feet of net absorption in the retail market, and vacancy increasing one-tenth of a percentage point to 9.2 percent. This was not a dire development, but does reinforce the idea that the local retail market is back in what we might term the “normal business cycle.” Fortunately, taxable retail sales and retail employment growth continued to be strong in the second quarter of 2016, so there is no reason that retail might resume its expansion in the third quarter of 2016.
The second quarter of 2016 saw land sales, in terms of acreage sold, continue to increase. Land sales in the second quarter amounted to 1,794.5 acres, bringing the total for 2016 up to 3,018.5 acres sold. This is a significant improvement over land sales in 2015. While development in Southern Nevada is not booming, it is certainly recovering and growing stronger, especially in the industrial and multifamily sectors. If this continues, demand for land should increase through 2016 and 2017.
Southern Nevada’s economy now may look something like its younger self, but there are significant differences as well. Some measures of the local economy have exceeded their 2005 levels, such as gaming revenue (which peaked in 2007), employment (with the notable exception of construction employment), and taxable sales. Likewise, migration into Southern Nevada is much lower now than it was in the early 2000’s, as are new home sales. The local economy is now more dependent on its hospitality sector than it used to be – not exactly the change that many local business people and politicians were hoping for. Still, the new formula appears to be working, and should continue to work through the remainder of the year.
The full second quarterly report of 2016 can be downloaded by clicking here
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