New lease-up marks ongoing economic recovery in Southern Nevada

Someday, Southern Nevada's hot industrial real estate market will cool.

But Monday wasn't that day.

Reno-based developer Dermody Properties announced an agreement with distribution company Priority Wire & Cable for 223,000 square feet inside Dermody's LogistiCenter at Cheyenne, a 381,804-square-foot speculative industrial building on 20 acres at 4025 E. Cheyenne Ave.

The deal reflects high demand for speculative space, which is built without tenants lined up. Along with other recent industrial agreements, the lease-up signals Southern Nevada's ongoing revival, observers said.

"It shows the economy is now proceeding forward in a sustainable way," said John Restrepo, a principal in local research firm RCG Economics. "It's not just an aberration or a blip. We're in for a slow and steady recovery."

The leasing boom also boosts the overall economy.

Said George Condon, partner in Dermody's West Region office: "These are great employers with good-quality jobs."

Still, for a city pummeled by a nation-leading real estate recession, it's reasonable to ask if developers might repeat the mistakes of 2006.

Of the local industrial market's 120 million square feet, 51 million square feet are speculative industrial space, said Dan Doherty, executive vice president of commercial brokerage Colliers International and a leasing representative for Dermody.

Industrial developers have 2.2 million square feet of spec space under construction, with 4.4 million square feet planned for groundbreaking in the next 24 months. The 6.6 million-square-foot total would add 13 percent to the spec submarket's space in just two years.

Developers watchful

So far, demand has been strong, though developers insist they're watching for the day when it slackens.

Priority is expanding, leaving its 180,000-square-foot space at 2970 N. Lamb Blvd. When Priority is fully moved in — likely by May — it will join LogistiCenter's first tenant, Dallas furniture maker Southern Enterprises, which inked a deal in September for the first 148,635 square feet.

That means LogistiCenter was completely leased up within weeks of its late-2015 completion — a pace almost unheard of in a sector that usually requires up to a year to fill speculative buildings.

The speedy leasing reflects activity in the larger market.

Local tenants absorbed 5.1 million industrial square feet — 85 percent of it spec — in 2015 alone, Doherty said. He forecasted another 4 million square feet of absorption, including the space Priority left, in 2016.

In North Las Vegas, developers have finished four buildings totaling 1.4 million square feet in the last year. Three of those buildings — LogistiCenter plus two Prologis buildings at Pecos and Gowan roads — were leased before completion.The fourth, a 447,000-square-foot Pauls Corp. building at Lone Mountain Road and Berg Street, sits empty only because multiple, smaller tenants bypassed it while leasing executives negotiated with one big user on a deal that just fell through, Doherty said. The property, which CBRE Las Vegas is marketing, should find a tenant in the next six to eight months, he added.

Meanwhile, Prologis already has a tenant — a Wisconsin-based heavy-equipment company — for a 195,000-square-foot building in North Las Vegas that hasn't even broken ground.

"Activity is very good. Obviously, we can't continue to lease buildings during construction forever, but there doesn't seem to be a big sign in the market that there's going to be a slowdown in demand," Doherty said. "If you're wondering when we'll get back to equilibrium on supply and demand, I can't answer that right now because everything is leased so fast."

Recovering from credit crunch

Credit long-stifled construction for the lightning-fast leasing. The market didn't add one big spec industrial space from 2007 to 2014.

"Western real estate markets in general had a lot of pent-up demand, and some of that demand wants to be in Southern Nevada now," Doherty said.

That demand shows in vacancy rates. Industrial vacancies dipped to 4.7 percent in the fourth quarter, down from about 15 percent in the recession, Restrepo said. His numbers show even tighter markets in some subsectors: North Las Vegas' industrial market has vacancy of 3.2 percent. For light distribution space in the city, the number is 2.3 percent.

"The big players are almost all full," Restrepo said.

But Dermody executives aren't taking anything for granted beyond 2016.The company plans to close in the next two weeks on 36 acres in North Las Vegas and will look to build a 500,000-square-foot spec building on the site. Condon said he hopes to "tie up" another parcel for 250,000 square feet later this year, though he wouldn't say where for competitive reasons.

After that?

"We're not over-exuberant. Looking two projects ahead is appropriate for this marketplace," he said.

Condon said other big industrial developers tell him they see it the same way. Few developers or industry experts would even hazard a guess on how strong the market will be two years from now, but they said they're keen to avoid overbuilding.

That means the 4.4 million square feet on the drawing boards may not all happen.

"Some of those buildings will be determined by the success of current buildings," Doherty said. "As long as spaces lease really quickly, developers will do everything they can to get those next two or three buildings under construction. If they can't lease quickly, they won't build more."

Contact Jennifer Robison at jrobison@reviewjournal.com. Find @_JRobison on Twitter.