Office towers: They’re scattered across the Las Vegas Valley.
Office towers that come with golf-club membership discounts? That’s a much smaller universe.
In fact, local brokers say they can think of only one — and it’s also the only Class A office tower under construction in the local market.
The Howard Hughes Corp. announced Tuesday that it’s building One Summerlin, a nine-story, 200,000-square-foot tower at 1980 Festival Plaza Drive, near West Sahara Avenue and the 215 Beltway, and next to the under-construction Shops at Summerlin. The building is already more than 30 percent full, with tenants including The Howard Hughes Corp. itself and BusinesSuites, a company that leases smaller executive offices.
That demand might make it easy to forget the valley’s office market remains depressed. Vacancy rates run as high as 25 percent, depending on whose numbers you follow and what submarket you check. So it’s reasonable to ask if it makes sense to build a new tower.
Even brokers involved in the project acknowledge the office market continues to struggle, and One Summerlin might make things harder for some landlords.
Randy Broadhead, a senior vice president in the Las Vegas office of commercial brokerage CBRE and the leasing agent for One Summerlin, said as many as 40 percent of the building’s tenants will come from outside the local market. But other tenants are already here, and may abandon existing space to move into the tower.
“It’s a mixed bag, it really is. No doubt, the market has vacancies, especially in the inner part of the city,” Broadhead said. “Class A buildings are gradually getting filled up, but not as fast as we’d all like.”
Still, observers say One Summerlin is in a league of its own, and it won’t contribute much to broader office woes.
With 13 million empty square feet in the market, another 200,000 square feet won’t have an “overwhelming effect” on vacancy rates, said Brian Gordon, a principal in local research firm Applied Analysis.
Much of the empty space is in office condominiums in smaller, freestanding buildings along the 215 in the southwest, and around Henderson, Gordon said.
What the market is missing, though, is “true Class A office buildings that provide large-scale floor plates that can accommodate higher-end corporate users,” Gordon said.
A single floor at One Summerlin has more than 23,000 square feet, plus 360-degree views of both Red Rock Canyon National Conservation Area and the Strip. The glass-clad, steel-framed building will have a parking garage, first-floor retail and, for some tenants, that discounted membership to the TPC Summerlin golf course. There’s also 1.6 million square feet of retail and dining next door, at The Shops at Summerlin — an unparalleled amenity in Las Vegas, said Kevin Orrock, president of Summerlin and vice president of master-planned communities for The Howard Hughes Corp.
That makes One Summerlin a better bet, especially for image-conscious corporate tenants, observers said.
“When you just look at the (vacancy) numbers by themselves, it’s easy to say, ‘We simply don’t need this building,’” said John Stater, research manager for Colliers International, the brokerage that handles leasing for One Summerlin rival The HC|Hughes Center at Flamingo and Paradise roads. “But if you drill down to the product level, we’re in a market that hasn’t seen any new Class A office construction in quite a few years. A lot of the Class A product that’s out there is older, and it’s not quite what people want.”
Orrock said potential One Summerlin tenants include corporate headquarters, law firms and real estate companies.
“It’s really going to be an address for someone who wants to make a statement about their business,” he said.
It’ll cost to make that statement: Broadhead said One Summerlin is leasing for $2.90 to $3 a square foot on a full-service-gross basis, which means rent covers all expenses including utilities and janitorial service. That compares with an average of $2.60 to $2.80 for all Class A space valleywide, but it’s right in line with The HC, where lease rates run as high as $3.15 per square foot, Broadhead said.
For all office submarkets, the average full-service-gross lease rate is $1.87, Gordon said. He added that businesses looking for a specific location and amenities will pay more.
But Stater called the rents “fairly high.”
“This will be an interesting test for the office market to see how it adjusts, and ultimately what impact it has,” he said. “It’s coming at an interesting time for Las Vegas. It will be fun to see how this all works out.”
Contact reporter Jennifer Robison at firstname.lastname@example.org or 702-380-4512. Follow @J_Robison1 on Twitter.