At the height of the pandemic, industrial real estate was at a premium. With everyone everywhere buying everything online, warehouses, distribution systems and logistics centers were in high demand. So was land zoned for industrial use and infill spaces that could be converted. Simultaneously, the demand for office space reduced as remote work replaced commuting to the office. Office and retail buildings emptied out.
“For the longest period of time I can recall, especially in southern Nevada, we had below 5 percent vacancy, and that is a great barometer for folks like us to say, ‘Boy, it’s time to go’, so we continued to develop and we’re looking where the market is, and we’re looking where leasing activity is, and what our competition is doing, and still all signs were good,” said Keith Earnest, EVP, VanTrust Real Estate. When interest rates spiked and the presidential election neared, things slowed down. There’s been more supply than demand for the last year.
The industrial market has slowed nationwide and statewide in the last 12 to 18 months. New product is leasing slowly if at all. According to Earnest, it may take a year of “chewing away” at current supply before developers build another building. “It was a nice seven or eight year run, and the brakes got pumped. Now it feels like we’re getting more back into a rhythm from a leasing perspective.” Now that demand is increasing, Earnest is optimistic development will start up again, maybe in Q4 2025.
“It’s been pretty slow. There has definitely been a decrease in tenant demand and leasing velocity in the industrial market,” said James Wall, director, Rockefeller Group. “Consumers aren’t buying as much product now due to inflation and whatnot. We’re definitely seeing a slowdown in the leasing market. It’s hard to get tenants in buildings and when you do have a potential tenant, we’re seeing other landlords get really aggressive in terms of the deals they’re providing tenants. It’s a super competitive market in terms of leasing. There’s high vacancy in the marketplace and it’s been a challenge from a leasing standpoint to get buildings built.”
Nationally and regionally, 2024 was a slow year. “It was an overall catchup time for different businesses to figure out how to move forward,” said John Ramous, partner, Dermody. Companies were waiting through market uncertainty of interest rates and the presidential election. There was a lot of hesitation after early activity that basically led to nothing transpiring. Across the board, vacancy rates increased.
Walls’ concentration (buying land and doing re-development projects) has been challenging for the last year. There’s a gap between what sellers are looking for in terms of price and what buyers are expecting in a slow market. “Sellers are still holding on to the pricing of 2022 when it was at it’s peak,” said Wall. ” It’s been difficult for the last two years from a leasing perspective as well as to get new acquisition opportunities closed.”
Early activity in 2025 has Ramous optimistic there will be an uptick in leasing activity, based on tours and requests for proposals. It feels like corporate America has finished rightsizing and knows the size property they want for the size business they have. So they might be ready to sign leases for those spaces. “We’ve got a number of projects that we’ve identified a number of tenants for those spaces both north and south, and I’m very optimistic that several of them are going to happen over the next 60 to 90 days if not sooner,” said Ramous.
With the market oversupplied with product, the value of industrial-zoned land is dropping despite the scarcity of land and how much is held by Bureau of Land Management (BLM). Depending on the site, values have dropped anywhere from 40 to 60 percent, though Wall estimates Nevada’s industrial real estate market has held up better than the Inland Empire or Phoenix.
Still, businesses continue moving in. “Nevada is still very much in demand for tech and industrial real estate, both in northern and southern Nevada,” said Donny Gilman, CEO, L. Lance Gilman Commercial Real Estate which developed the Tahoe Reno Industrial Center (TRIC). “Policies like no state income tax, as always, continue to be a big draw for new businesses looking to relocate.”
Home (or Industrial Developments) on the Range
Especially in southern Nevada there’s a lack of land available for CRE development. Office and retail can fit into master planned communities close to residential. Industrial requires acreage and distance from homes. With land scarce, developers are starting to look at infill opportunities in core locations, though many of those sites are already acquired.
“That will be beneficial to groups that have buildings in the 50,000 to 250,000 square foot range because you’re not going to be seeing a whole lot more of those types of buildings in that size range being developed,” said Wall. “In the next few years landlords will be able to get a little more aggressive and push rents because it’s hard to find [places] that can accommodate buildings in that size range.”
Lack of land also means no one can start a new development without having entitled land. Infrastructure in both ends of the state is always challenging. “You have to be in the position of being able to deliver buildings first and often there’s a pretty heavy lift of getting the water, sewer and electricity to the site, so you’ve got to sometimes be planning a couple years in advance of the project,” said Earnest.
The cost of infrastructure can be more than the cost of land. Developers need to know the cost of improvements and the timeline for getting them in place. And the farther a site is from a municipality, the harder it is to get infrastructure set up and utilities in. While there are bills seeking to free up BLM land in both northern and southern Nevada, infill sites closer to cities might be a better choice.
Infill is better for the environment, as well. Land use needs to be a win-win for everybody, Ramous said. That includes preserving open land as well as developing real estate.
Submarkets with Land
With both open land and infill sites filling, developers need to expand their geographic footprint.
One growing southern Nevada submarket is Apex Industrial Park, located north of the Speedway and the North Las Vegas submarket. Developers are taking down sizeable swaths of land. Apex is expected to be a bigger block market with buildings in the 250,000-square-foot up to the million-square-foot range.
There have been challenges with Apex. The project struggled through the recession and changed ownership more than once. It took years to get infrastructure and utilities to the property and it’s not complete. In addition, the terrain is rough and presents grading challenges.
“The city’s (North Las Vegas) commitment to putting the waterline in was a catalyst to jump-starting Apex. Now the waterline is there you’ve got substations being built, or improved, so utilities are starting to make their way to Apex, which makes the land more valuable, and makes people look and say, ‘Gosh, I can see the utilities going in, so I’m going to be okay; I’m going ahead to develop a building and put my business there’,” said Earnest.
Another growing southern Nevada submarket is Eldorado Valley, southeast of Henderson. The park isn’t as developed as Apex and has more structural work that needs to be done. Utilities are farther behind and according to Wall, many developers who have purchased land there are waiting to see who makes the first move to get infrastructure built.
In northern Nevada, east of Reno, the TRIC is the largest privately owned industrial park in the world, and still has tracts of land available, including 1200 acres of tech/industrial property.
Reduce, Reuse, Recycle
What can you do with an old, empty Walmart? Demo it for the 19 acres underneath.
Older office buildings and big box retail properties are being converted into industrial uses. Several years ago, an older All State campus in Chicago found new life as a logistics center. As the pandemic made office buildings and retail centers go dark, plans were made to convert those sites to in-demand properties.
The market has corrected after the pandemic. The demand has fallen off and the supply is high. Costs to build new facilities have risen dramatically, rents have stabilized, and its more difficult to justify converting buildings. For one thing it’s not as simple as demolishing one and building another.
“You’re going to have to work with the city because zoning is different,” said Earnest. “You’re going to go from a commercial-type use to an industrial use, from vehicle traffic to truck traffic. Is the municipality going to want to have that?” That’s a challenge from the entitlement standpoint. Then even with the falloff of demand for office buildings there’s the chance the owner will question the value of the land under the outmoded building.
Rockefeller Group is completing a two-building, 369,000-square-foot project in Craig Road Logistics Center, the site that once housed Walmart. That project wasn’t super close to residential, Wall said. “We were fortunate the location of our site was kind of abutting other industrial uses so we were able to get the project done without a whole lot of pushback from the community and residents.”
But such projects do need to take into account proximity to schools, homes, churches, and other residential uses. It’s not an automatic switch from past use to new use.
“There may be pressure on the part of Clark County at some sites to possibly rezone some small and midsize parcels that are now for hotel gaming or residential if there’s a demand for some additional warehouses,” said Jordan Schnitzer, president and CEO of Schnitzer Properties.
“The value of older office or big box retail properties being converted to industrial uses, down to land values anywhere from $8 to $25 a foot. Some of those mall sites, value down to that level, then developers will buy that and create industrial properties and rents will just be higher than they’ve been in the past,” said Schnitzer. “It’s going to happen, but it’s going to be very selective and there aren’t that many sites.”
“In Nevada this really hasn’t penciled out right now,” said Ramous. “I think over time you will see some older areas in Southern Nevada, on the east side of the airport, farther out, where some of these buildings have been vacant for 15, 20 years. There are opportunities there but we haven’t seen yet those land values or ownership desperate to sell and economics that make sense to convert.”
The Heat of the Moment
In 2023, the Nevada Legislature put a moratorium on new warehouses with evaporative cooling. That complicates development going forward in that tenant use may dictate what the building needs in terms of cooling. Some developers are taking a wait-and-see approach rather than going forward with HVAC-ready or adding it to spec improvements. Evaporative cooling is considered a waste of water, but air conditioning can be more expensive, and not every user wants an air-conditioned warehouse.
“There isn’t one of us whether in Nevada or Tennessee or Texas that isn’t concerned about climate change,” said Schnitzer. “Therefore, while it’s more expensive, as long as it’s applied to everybody, the long-term switch from evaporative cooling to air conditioning is something that long-term will be important for the environment. So while we may as developers [complain] about the increased cost, I applaud the legislature for taking that initiative.”
The change is still working through the industry; the moratorium went into effect February 2024. “We’re finding that we’re not losing deals if you don’t have evaporative coolers,” said Ramous. “We just did a deal over the last 60 days and we did have to upgrade our warehouse to accommodate air conditioning. I think it’s certainly a condition a lot of companies supported early on, but it’s going to play out over the next two to three years.”
When considering other legislative impacts on industrial CRE, Earnest said most municipalities in Nevada understand development and have clear zoning and building codes. From a labor standpoint, development standpoint, and legislative standpoint, Nevada is so much more favorable than California that there are constant inquiries about industrial buildings from companies considering moving to Nevada. “So it’s almost the legislative action in California that’s great for Nevada,” said Earnest.
“We are bullish at the moment on industrial and tech real estate sales and leasing,” said Gilman. “The main risks to our market as I see it are, first, a general major recession like we had in 2008′ second, another virus pandemic. Or third, a change in culture in the state, or in localities, that gives off a vibe of anti-growth, or anti-tech.”
