The industrial real estate market is humming along very well, but still experiencing a hangover from the Great Recession. Multiple Nevada real estate executives noted the strong performance of industrial real estate in both Northern and Southern Nevada, led by low vacancy numbers, but it’s hard to keep up with the current demand.
There’s a lack of speculative development, according to Larry Monkarsh, owner of LM Construction and partner of Brass Cap Development.
“It’s still a hangover of the recession, especially the lenders,” Monkarsh said. “The institutional banks aren’t lending on it, but it is out there and people are getting it done.”
The industrial vacancy rate in Las Vegas is 3.6 percent and Reno is at 5.67 percent, according to Colliers International Q4 2018 market report. CBRE reported a vacancy or 2.6 percent in Las Vegas
According to Colliers there was a net absorption in Reno of 2.2 million square feet of industrial space and 5.2 million square feet in Las Vegas.
Both Northern and Southern Nevada are strong in industrial activity according to Michael Dermody, whose Dermody Properties covers both markets as well as the rest of the country through six offices spread across the U.S.
Both markets have significant potential to continue the strong activity, but Dermody points to the per capita square footage numbers in each city as an indication where future development might continue. Reno has a population of 430,000 people with 90 million square footage of industrial space while the Las Vegas metro area has 2.2 million people and 130 million square feet of industrial space.
“The state is doing excellent because of all the projects and jobs it’s brought in,” Dermody said. “The challenge is managing the infrastructure to continue the wave of keeping the users happy.”
Monkarsh doesn’t see industrial real estate slowing anytime in 2019, and while it’s early to forecast 2020, he’s optimistic similar trends will carry over into the first quarter of next year.
Should the economy struggle soon, Dermody said his company is in a strong position to continue without too many stumbles.
“Our platform as of today is a little different than the past,” he said. “We evolved to become a national real estate investment company and not only develop, but also acquisition properties. Half of our projects are acquisitions and that’s a completely different profile. When the economy is good, development and acquisition are good. When it slows down it’s good being an investment company to be able to acquire buildings. We see opportunities in acquisitions.”
Monkarsh said there’s a good amount of outside investment coming into the Las Vegas industrial market and plenty of the new buildings are driven from companies coming in from out of state.
Internet Fulfillment
The major driver of the success of the industrial segment is the internet fulfillment industry as more retailers head to e-commerce.
Dermody called internet fulfillment one of the “cornerstones” of the industrial real estate success. Dermody company representatives are seeing California companies touring Reno area properties multiple times a month, which Dermody credits to the economics, but also the quality of life. “That does a lot in turning the head of a CEO,” he said.
Monkarsh mentioned North Las Vegas Mayor John Lee as doing a wonderful job in putting the city in a position to attract big box users to the area.
North Las Vegas is currently in a “fast and faster approach to business permitting,” according to Gina Gavan, the economic and business development director in North Las Vegas. The past two years have seen more than 60 commercial and industrial projects start in the city with tens of millions of square feet completed and many more in the pipeline.
Of note is a 2.4 million-square-foot Amazon logistics facility, the fourth major Amazon building in North Las Vegas, which Gavan said will inject $1.3 billion into the economy over the next decade.
It’s buildings like Amazon’s that are changing the landscape of industrial space, said Shawn Danoski, CEO of DC Building Group in Las Vegas. He said, while there is some product available even at the low vacancy rates, it might not meet the needs of the new generation of users.
“Many of the larger industrial buildings recently completed or in process have been built to serve e-commerce uses,” Danoski said. “The increase in retail demand has continued to cause the industry to be more innovative in their shipping and logistics. This demand is giving a surge in the field of multi-story industrial facilities, which is something that was unseen a decade ago and is now becoming commonplace.”
Plenty of companies are locating in Nevada because of the prime workforce in the state.
“What drives this business today is the economics of a sound local economy and labor pool,” Dermody said. “We pay attention to labor pools that live where they work. That’s strong here in Nevada.”
Many of the projects in the Reno-Tahoe area are driven by the high real estate costs in California, and Dermody is strong in his belief a strong California economy is best for Nevada’s economy.
With an eight-hour truck drive between the two, there isn’t really market overlap, Dermody said.
Under Construction
Monkarsh said Brass Cap Development has multiple projects underway in Southern Nevada that will help fill a niche in what the firm leaders have identified as a market with users looking to buy facilities.
Currently Brass Cap Development has 500,000 square feet of construction underway, primarily in the Southwest subregion. LM Construction meanwhile is wrapping up several smaller projects for other developers.
The new construction does allow for the repositioning of existing industrial facilities as tenants shift to expanded or updated spaces and leave their former locations open for new users.
On the slate in Southern Nevada, according to Colliers Q4 2018 report, is more than 4.4 million square feet for the first quarter of this year and 3.2 million in the second quarter. Of note in the first quarter is 2.1 million square feet at the Prologis I-15 Speedway Logistics Center. Forecasting out to 2020, Colliers reported 2.8 million square feet in the pipeline, including a 750,000-square-foot Google Data Center.
One of the challenges moving forward will be a tightening of the construction market, which Monkarsh hopes will bring more competition and help drop prices.
“A lot of contractors are busy and it’s inched up,” he said. “But I think a little bit of a relax regarding the prices and maybe some of the rush has waned.”
North Las Vegas is where a majority of the Southern Nevada industrial activity is centered, as CBRE reported 72 percent of the space completed in 2018 was in the submarket.
In addition to the massive Amazon investment in the city, Gavan said there’s a range of infill development taking place across the city and the Speedway area continues to develop, thanks to a $46 million investment in infrastructure.
“Quick-serve commercial with food, services and amenities are also finding great success near the large industrial projects that have become centralized employment centers in North Las Vegas,” Gavan said.
Land Availability
Twenty years ago, Dermody recalls boarding a flight and grabbing a USA Today off the news rack. He chuckles now at a headline he read at the time about Las Vegas running out of land.
“Nevada is the seventh largest state in the union and quickly it understood the BLM constraints,” he said. “That’s a limitation coupled with the fact that a lot of land was used for residential and not designated for industrial or other commercial. That could hamper a great city, but it’s now being corrected as it grows into new areas.”
Danoski said the government holds up to 80 percent of Nevada land, which has upsides as industries and regulating agencies work together to release the land for the next opportunities to grow.
Land constraints could be an issue in the future as well, but for now Dermody is excited about the opportunities in the Apex and Tahoe Reno Industrial Center (TRIC) areas, as well as other smaller cities across the state for growth in industrial real estate.
Among the infrastructure investments for Apex include the $58 million Garnett Interchange and US 93 expansion by Nevada Department of Transportation and a $4 million investment for a 750,000-gallon elevated water tank, as well as a 12-mile water line. Other new projects starting in the area include a truck stop, medical waste facility and a renewable energy project.
“Apex is well on track to be the industrial park that diversifies the Southern Nevada economy and paves the way for North Las Vegas’ long-term success,” Gavan said. “The park provides opportunities for new manufacturing, intellectual capital and big job creators to take root and rise. Development of the industrial park is in the beginning stages of reaching Apex’s true potential and at full build out is anticipated to create tens of thousands of jobs and pump billions into the local economy.”
As the Vegas Valley continues to fill up, however, land could continue to be a constraint.
Monkarsh said, as the BLM begins to auction off land again, the question will be whether it’s still primarily for home builders or if there will be industrial use as well.
North Las Vegas still has 50 percent of its land undeveloped and looks to continue a friendly working relationship with the BLM, Gavan said.
“Land is a valuable resource and there is only so much of it, so managing and having input on the acreage that is within the disposal boundaries of our city is very important to the long-term success of North Las Vegas and Nevada,” she added. “There has to be a balance in managing the highest and most valuable use of what is developed, how it aligns with the demand for growth and how land is released.”
So long as land availability doesn’t tighten too significantly, Dermody is confident Nevada will continue to have the strong economics and workforce along with cooperate politicians.
“We’re really excited about the future of the state,” Dermody said. “It’s very exciting, the economy is different than when it started its recovery in 2011 or 12, and in some ways may even more challenging now, but we look forward to working with Governor Sisolak.”
He added, “At the end of the day, no matter what side of the aisle, Nevada is a great state to do business. It’s a right-to-work workforce and provides a good baseline for industry to grow. That’s the core to this state, the quality of people that live here and attract business.”
