Southern Nevada's construction industry showed more signs of slowing in the third quarter, the Las Vegas chapter of Associated General Contractors reported.
Taxable construction spending fell 14.8 percent over the past 12 months to $3.13 billion, largely a result of declining residential building permits. After three years of high-volume development, Las Vegas has experienced a 46 percent drop in single-family permits and 56 percent drop in multifamily permits.
Clark County has the nation's sixth-highest foreclosure rate and has one of the highest concentrations of subprime and adjustable-rate mortgages, the AGC market brief noted. Many housing analysts suggest the trend will worsen in the next 12 months as some 2 million mortgages nationwide reset to higher interest rates.
Construction employment fell 1.2 percent from a year ago to 108,500 in September, representing 11.6 percent of Southern Nevada's total employment base.
Construction costs continue to escalate, driven more by wages and salaries than materials, AGC reported. Average wage rose to $24.83 an hour, a 7.6 percent increase from $23.08 a year ago.
Overall, Las Vegas continues to outpace regional and national construction activity due to a strong commercial building sector, local AGC Executive Director Steve Holloway said.
Although the number of commercial building permits is down 25 percent from a year ago to 1,175 through August, the value of those permits increased 13.3 percent to $2.11 billion, according to the latest figures available for the AGC third-quarter report.
"Thank goodness the commercial part is really going," said Linda Harris, 16-year owner of L.F. Harris and Co. "I look at the in-house flow from our architects and engineers. It's hard to get a drawing out of these guys. Not that they're slow, it's just that they're busy. That tells me that work is still strong."
With $30 billion in capital investment, the Strip is going through its largest boom in history. Some 29,500 new hotel rooms are under construction and 48,800 rooms are in the development pipeline.
"What's happening on the Strip is an anomaly," Holloway said. "If it wasn't for the Strip, commercial would be following residential rooftops. It would be decreasing and it is away from the Strip."
Ken Simonson, chief economist for AGC in Alexandria, Va., said construction in Las Vegas is "astounding" compared with the rest of the country.
"We're sort of at a point of maximum uncertainty right now," he said. "We're hearing a lot of bad news in terms of banks and investors having a lot of bad loans. If we don't get any more bad news, I think construction will boom in Las Vegas. But if lenders tighten up, construction will tighten up in Las Vegas too."
Simonson remembers developers pulling back in Las Vegas a few years ago, citing Related Cos. and the Ivana Las Vegas high-rise project.
"I was surprised they got a second wind," he said. "We're at a possible flexion point where we may have put too much out there ... maybe not."
Holloway said he's concerned about the long-term viability of keeping the current occupancy rate of more than 90 percent for the new hotel rooms coming online. That will require an additional 25 million visitors a year.
"How are we going to get them here? There's a lot of long-term stories involved in the numbers we gave you," he said.
Holloway looks for nonresidential construction to remain strong into 2008, with some weakening as record-setting supply is added to the market and leasing takes longer than expected.
The office market is growing at a robust clip with 3 million square feet under construction and 8.5 million square feet in the planning stages. Office vacancy rose to more than 12 percent in the third quarter and would be higher if you count space available for sublease, said Ken Marrama, researcher for Commerce CRG brokerage.
Retail construction is down 20 percent from a year ago to 4.2 million square feet, although another 14.5 million square feet is planned.
Developers are concerned about the long-term availability of industrial-zoned land at feasible prices. Excluding property transactions in the resort corridor, the average price for an acre of land was $677,300 in the third quarter, up 1.5 percent from a year ago, research firm Applied Analysis reported.
Still, the industrial sector has 5.5 million square feet under construction, though almost exclusively by developers who have held parcels for years with a low land base.
Contact reporter Hubble Smith at firstname.lastname@example.org or (702) 383-0491.