Industrial vacancy topped 10 percent in Las Vegas and there's virtually no industrial space under construction or planned for the next 24 months, CB Richard Ellis brokerage reported in its fourth-quarter MarketView.
Vacancy for 98.7 million square feet of industrial space climbed to 10.15 percent in the quarter, up from 9.12 percent in the previous quarter and 7.63 percent a year ago.
CB Richard Ellis industrial broker Donna Alderson said she expects to see vacancy rates continue to increase this year as tenants consolidate or leave the market because of weak economic conditions.
Asking lease rates dropped to 62 cents a square foot per month, down three cents from the third quarter and down 13 cents from a year ago. Leasing activity continues to be concentrated in short-term new leases and renewals.
"We have seen very few new tenants enter the Las Vegas market this year," Alderson said. "There's people looking from outside of the market, but they're not pulling the trigger."
Most leasing activity consists of existing tenants downsizing or shifting within the market for better deals. Existing tenants are shopping around for cheaper rates, then going back and "beating up" their landlords, Alderson said.
The only significant industrial development during the quarter was the 413,000-square-foot Freeman Cos. headquarters at Sunset Road and Torrey Pines Drive in the southwest valley. The 49,000-square-foot Winner Industrial building came on line in North Las Vegas.
Net absorption, or the amount of industrial space taken, was negative 641,244 square feet, the third straight quarter of negative absorption. Most of it was lost in the airport and North Las Vegas submarkets, where vacancy rates are 13.8 percent and 11.3 percent, respectively.
Restrepo Consulting Group showed fourth-quarter industrial vacancy at 15.3 percent, up from 14.3 percent in the third quarter and from 10.7 percent a year ago.
"Who would have thought back in December 2007 at the start of the recession, when we had an industrial vacancy rate of 6 percent, that we would be at 15.3 percent today?" principal John Restrepo said. "It's amazing and shocking how deeply our once-robust industrial market has been pummeled by the recession."
Colliers International reported 14.5 percent industrial vacancy, with asking rent of 61 cents a square foot, while Applied Analysis put it at 13.7 percent with pricing at 63 cents a foot.
Even with all the doom-and-gloom numbers, there are a few bright spots, Colliers research manager John Stater said. Three industrial building segments -- light distribution, incubator and flexible space -- has positive net absorption in the fourth quarter.
"Unfortunately, the serious loss of construction employment that occurred over the past two years has dealt a serious blow to the local industrial market, and a lack of new residential and commercial developments going forward suggests that landlords can expect lower levels of demand than they saw during the past five years," Stater said.
At this point, few industrial developments have been hit with notices of default, though Alderson said she expects to see an increase in industrial defaults starting in the second quarter.
"We anticipate that the challenging economic environment will continue into 2010," she said. "I think rents are going down some and vacancy is going up, and that will continue this year. I hope the bleeding kind of stops by 2011."
Although clear and consistent signs of recovery may not appear until 2011, pricing expectations between tenants and landlords have adjusted to new "market realities," Applied Analysis principal Brian Gordon said.
Newly established price points, combined with fundamental improvements in the economy, may lead to healthy sales and leasing activity in two to three years, he said.
Contact reporter Hubble Smith at email@example.com or 702-383-0491.
Las Vegas industrial market
Submarket Total square feet Vacancy rate Average lease rate Net absorption
Airport 12.2 million 13.8 percent 66 cents (470,912)
Central 8.4 million 3.1 percent 58 cents (3,269)
Henderson 12.4 million 11.9 percent 61 cents (94,776)
North Las Vegas 29.2 million 11.3 percent 52 cents (425,889)
Northwest 989,318 17.3 percent 70 cents (8,211)
Southwest 35.5 million 8.8 percent 74 cents (155,839)
Total 98.7 million 10.2 percent 62 cents (641,244)
SOURCE: CB Richard Ellis