Land prices and poor access to transportation routes mean big box users are ignoring Las Vegas and opting for Reno and Southern California instead.
When America’s largest bookseller, barnesandnoble.com, was scouting a site for one of its main Western distribution centers, Southern Nevada didn’t even get a passing glance, despite its proximity. to the lucrative, densely populated Southern California market. Instead, the New York City-based retailer chose Reno for its behemoth 600,000-square-foot operation, undeterred by the fact that snowy winters in the area frequently cause freeway havoc and outright closures of major highways, the very arteries barnesandnoble.com would routinely need to get its product to market.
The Reno location of the distribution center, which is expected to create hundreds of new jobs, aroused concern among some of Southern Nevada’s most prominent industrial development interests. “It was disturbing to find out Las Vegas wasn’t even on barnesandnoble.com’s short list of areas to locate to,” said Steven Spaulding, vice president at the Las Vegas office of ProLogis Trust, the nation’s largest owner of industrial properties.
Eager to discover the why behind barnesandnoble.com’s decision, Spaulding utilized research data obtained by a firm named Insight. The company, which ProLogis owns an interest in, provides software programs to aid firms in choosing sites for distribution centers, such as barnesandnoble.com’s operation in Reno. Spaulding concluded Southern Nevada’s inability to provide companies with easy access to the Interstate 80 corridor – which is essential in servicing both Northern and Southern California – had to be one of the primary reasons it never even made the list.
Interstate 80 also intersects with 1-5, a vital link to markets in the Pacific Northwest. “There’s no empirical evidence to prove or disprove that theory, but if you look at 1-80 and how it intersects with the 1-5 corridor, you can see how much easier it allows a company to support its entire West Coast operations. I think we are severely disadvantaged when it comes to moving products from our area to Northern California and the Pacific Northwest,” said Spaulding.
Many industry players agree with Spaulding and believe Southern Nevada’s lack of direct Interstate freeway access to these routes permanently hinders its prospects in the big-box arena. “We’re not centrally located, which you need to be if you’re going to be a regional distribution point for a firm,” said Robert A. “Tim” Snow, president of Thomas & Mack Development Co., a leading local real estate development firm. “And it’s unlikely that we will ever be able to fit that bill,” he added.
Superior location may be why Southern California’s “Inland Empire” – a huge area sprawling from Ontario to Riverside and beyond- remains such a haven for big-box users. The Inland region provides these industrial interests, who routinely overlook Southern Nevada, with access to the I-80 and 1-5 systems.
Complicating matters even further is the Inland Empire’s huge inventory of big boxes, which continues to grow at an astonishing pace. Companies are often attracted to mark~ts that believe in the philosophy, “Build it and they will come,” according to ProgLogis’ Spaulding. “If you look at the quantity and size of the product being built there, it’s astounding,” he observed.
In fact, several big-box users who originally set up shop in Southern Nevada recently decided to relocate operations to the Inland area They include Big 0 Tires, which had a more than 300,000-square-foot location in Henderson, and Rite Aid Corp., one of the nation’s largest drugstore chains, which had occupied roughly 270,000 square feet in North Las Vegas.
In addition to its proximity to ideal transportation routes, the Inland Empire also boasts astoundingly cheap land prices. For instance, raw land costs in the Riverside area can range from as little as 75 cents per square foot to $1.75 per square foot. “We simply can’t compete with that,” says Snow, who estimates raw land costs in Southern Nevada now range from $3.50 per square foot to $5 per square foot.
And it’s not just land costs and transportation systems that are dampening Southern Nevada’s big-box market. Some argue the quality of the area’s workforce also needs to be examined. “I know from a manufacturing standpoint, we seem to have certain weaknesses in the skills of our labor force,” said Snow. “A general manager at Ocean Spray’s local plant told me that out of 50 applicants, only one had the computer skills needed to service certain manufacturing systems they use in their bottling process.”
Meanwhile, Southern Nevada’s booming gaming industry often creates an image problem for Las Vegas since many outsiders often can’t see life beyond the Las Vegas Strip. “When we took industrial developers on a bus tour five years ago, we never even drove down the Strip. And they were amazed at the beautiful communities in the area,” recalled Lee Phelps, a managing member of the Nevada Real Estate Group, which develops industrial and commercial properties in Southern Nevada “And look at how many more areas have been developed since then,” he added.
Some industry players believe corporate America’s image of the Strip and Southern Nevada’s notorious mob past make it impossible for some executives to consider Las Vegas for their business operations deSpite the fact it’s a booming metropolis. “Although, I think the image issue comes more into play when a business owner is considering locating his firm here and moving his entire family to the area,” said ProLogis’ Spaulding.
So what, if anything, can Southern Nevada do to lure more industrial development to the area? Ironically, the first thing people need to do is look beyond big-box industrial development, says Somer Hollingsworth, president and CEO of the Nevada Development Authority (NDA), a nonprofit public and private agency whose mission is to lure non-gaming industries to Southern Nevada.
Not that Hollingsworth is opposed to big-box users. He too would like to see Southern Nevada snare more of that market. But he believes the loss of some of those projects can easily be offset by luring more back-office operations to Southern Nevada, such as call centers or consolidated administrative facilities. These operations, says Hollingsworth, generate more jobs per square foot than distribution centers such as barnesandnoble.com’s Reno facility. “Back-office operations often use anywhere from 60,000 square feet to 100,000 square feet, and employ anywhere from 600 to 1,000 people,” said Hollingsworth. The 600,000-square-foot barnesandnoble.com operation is expected to employ several hundred people.
Hollingsworth pointed to Ford Motor Co.’s recent decision to establish a major regional administrative operation in Las Vegas. The facility, which will be operated by Ford Credit, a financial unit of the Detroit car manufacturer, is expected to create some 600 new jobs. And other blue chip firms could follow. Dell Computer Corp. and Progressive Insurance Co. are seriously considering Southern Nevada as a location for major administrative operations.
While Southern Nevada is clearly in the running for back-office facilities, industry players agree the factors hindering the growth of big-box development in the area need to be addressed. A unified marketing effort touting the area’s low-tax structure, quality of life and recreational benefits needs to be developed, said Phelps of Nevada Real Estate Group, which develops commercial and industrial properties in Southern Nevada “Living costs are at least 20 percent less here than they are in Southern California This is a wonderful place to live and we need to support more junkets and show business people just what we all have to offer.”
Development interests also say the state needs to play a more active role in Southern Nevada’s economic diversification efforts. Currently, Nevada’s annual (non-gaming) economic development budget is a paltry $3 million. “The city of Phoenix has a bigger budget ($3.5 million) than the entire state of Nevada What does that tell you?” asked NDA’s Hollingsworth.
NDA receives a $300,000 grant from the state and makes up the remainder of its $1.3 million annual budget with monies provided by its members, who constitute a wide variety of industries and business interests, including development and construction companies. The agency recently set up a task force to examine the depth and skill level of Southern Nevada’s workforce. The committee, which includes Thomas & Mack’s Snow, will focus on what needs to be done to provide a more qualified and attractive workforce.
While the to-do list to bring more industrial development to Southern Nevada is long and challenging, development interests remain optimistic that the area will become increasingly attractive to a wider range of industrial interests. “We just need to dispel some images of years past and work together in promoting all the positive traits this area has to offer. They really are outstanding,” observed Phelps.
