LAS VEGAS – Southern Nevada shook off the doldrums that beset it at mid-year 2016, and put in a strong performance in the third quarter of 2016. Underlying economic fundamentals seemed to improve as the Valley shifted from summer to fall, and carried commercial real estate along with it. As has been the case over the past few years, the industrial sector showed the most improvement, with over 1 million square feet of net absorption and more than one-half million square feet of new completions. Industrial vacancy decreased to 5.2 percent. The average asking rental rate for industrial space rallied and increased to $0.65 per square foot on a monthly basis, presaging more development in the future.
“Demand for industrial space, which softened during the first half of 2016, roared back to life in the third quarter,” remarked John Stater, the research manager of Colliers International’s Las Vegas office.
Multifamily sales increased in the second quarter of 2016 compared to the second quarter of 2015, with 5,786 units selling at an average sales price per unit of $118,841. The current wave of multifamily development in Southern Nevada began in the fourth quarter of 2015, and to date has totaled 2,437 units. A nearly equal number of units are now under construction and should be completed over the next few quarters, representing a distinct acceleration in new development. So far, these newly completed units have not resulted in an increase in vacancy. In fact, vacancy has decreased by 1.2 points over that period, indicating that these units are not taking tenants away from existing properties. Whether demand will keep up with new supply over the next few quarters is unknown, but we do not think these new properties will negatively impact the market.
Southern Nevada’s hospitality market is pushing its way past recovery and into expansion, at least in terms of visitor volume and gaming revenue. Room inventory remained essentially unchanged in the third quarter of 2016, and no additional closures are planned for 2016. The 201-room Lucky Dragon, under construction in the Resort Corridor, should be completed in the fourth quarter of 2016, and the 124-room Residence Inn that was under construction in South Las Vegas was completed this quarter. As high as occupancy rates have climbed, the market may at some point begin to feel the pinch of the lack of inventory growth. Inventory is set to expand by only 351 rooms by the end of 2016, and a mere 167 rooms by the end of 2017.
Mike Mixer, Executive Managing Director for Colliers International – Las Vegas said, “We think, despite this lack of planned developments, that visitor volume will end 2016 at a new high or near a new high, and we think gaming revenue might do the same.”
Southern Nevada’s office market continues to emulate the local desert tortoise, with slow and steady improvement that actually picked up steam in the third quarter of 2016. Vacancy continued its three quarter downward trend, hitting 17.1 percent in the third quarter, 1.1 points lower than one year ago. With the industrial market on fire, it is easy to forget just how much improvement has occurred in the office market over the past three years, to the tune of almost 2 million square feet of net absorption, a more than 3 point drop in vacancy and a 7.5 percent increase in asking rates. All signs point to continued steady improvement in the office market through 2017.
After four quarters of mounting negative net absorption, Southern Nevada’s medical office market made an abrupt turn into positive territory. Net absorption rebounded in the third quarter of 2016, reaching 54,493 square feet. This brought vacancy down to 17 percent. In medical office’s favor is the continued growth in healthcare employment and maybe the growth in healthcare spending in Southern Nevada. Even if not all of that growth is filtering into medical office buildings, should help improve demand for medical office space in the long run.
After a brief pause last quarter, Southern Nevada’s retail market continued to grow in the third quarter, with 408,766 square feet of net absorption driving vacancy down to 8.6 percent. Strong multifamily development in the I-215 corridor, stretching from Henderson to the Northwest, should stimulate demand for retail space over the next 12 to 24 months in the aforementioned submarkets. While taxable sales continue to be strong, we believe the retail market will continue to improve, and expect positive net absorptin to round out the year.
The third quarter of 2016 saw land sales slow down compared to last quarter and compared to this time last year. This reversed five quarters of increasing land sales. A single down quarter does not point to an overall slowdown in land demand by developers and investors. Developers appear to be ramping up construction of industrial buildings, and as the retail and office markets improve, new commercial developments will begin construction as well. Multifamily development might slow down after next year, and if it does, assuming the market remains healthy, multifamily developers will likely get back into an acquisition frame of mind to prepare for future development. In-migration into Southern Nevada appears to be improving now, and if it is demand for land will increase. We think land sales will continue at the present level into the fourth quarter of 2016, with the possibility for improvement by mid-year 2017.
The full third quarterly report of 2016 can be downloaded at: https://www.colliers.com/en-us/lasvegas/insights/marketnews/lvqreport.
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