It won’t look anything like the boom era, but 2014 should still be a strong year for local commercial real estate.
That’s according to brokers with commercial real estate firm CB Richard Ellis, who briefed reporters Thursday on their forecast for the year ahead. On tap: Major developments for the city’s, um, major developments, including the Oct. 9 opening of the Shops at Summerlin and the start of work on Resorts World Las Vegas, on the former Echelon site on the Strip. There’ll be challenges along the way, including a shortage of big industrial buildings and Southern Nevada’s reputation as a struggling market.
Here’s a roundup of what brokers see happening in the next 12 months:
Southern Nevada’s land market will see both opportunity and challenge in 2014.
The Las Vegas Valley is getting attention from big companies interested in moving or expanding here, so the “real headline in 2014 is going to be employment growth,” said Keith Spencer, first vice president.
With more people working, housing demand should pick up, Spencer said. Construction activity will surge in the southwest, near Buffalo and the 215 Beltway, now that zoning restrictions on McCarran International Airport-owned land are lifting. Plus, 250 acres south of Nellis Air Force Base are ripe for housing development.
Also, look for Henderson’s Inspirada master plan, which gets back under construction in earnest this year, to join Summerlin, Mountain’s Edge and Providence on the list of the nation’s 20 fastest-growing master plans, Spencer said.
The biggest threat to the market in 2014 is that those large, new employers might decide not to come. And with finished home lots running out, expect builders to chase unimproved lots with no infrastructure — a trend that could delay the influx of new homes onto the market.
Land prices will go “slightly higher,” staying mostly in check until local employment surges, Spencer said.
The city’s office market in 2013 posted net absorption of 1.46 million square feet, its best rate since 2006’s 1.9 million square feet. Credit big companies taking over large spaces, said Randy Broadhead, senior vice president. Barclays, Zappos.com, MGM Resorts International, Allegiant Air — all absorbed 100,000 square feet or more of space. Vacancy dropped from 25 percent to 22 percent.
Broadhead said he expects more progress in 2014, particularly as big call centers move in. Despite new additions of space at the Shops at Summerlin and the Gramercy — a retail, office and residential project once known as Manhattan West — both on the west side, vacancy should drop again, to 20 percent. That would still be well above a healthy market of 10 percent to 13 percent, a target that’s a ways off given an oversupply of functionally obsolete space in older, east-side neighborhoods.
“Class A space around freeways is doing well, while inner-city properties are struggling,” Broadhead said. “But eventually, there’ll be a rising tide. People will rehab those older buildings, and companies will move back in.”
As with the office market, a solid 2013 set up the industrial sector for a strong 2014. Companies leased a net of 2.4 million square feet, the highest level since 2004. Here, too, a few big-box users made the difference, First Vice President Greg Tassi said. Take World Pack USA, distributor of Pillow Pet stuffed animals, which took down 303,200 square feet in spring for Southern Nevada’s biggest industrial deal in six years. Or look at gaming manufacturer SHFL entertainment’s new, 150,000-square-foot space in the southwest.
That all helped push vacancy to 10.2 percent in the fourth quarter, down from about 12.5 percent in early 2012. Vacancy should shed another point or two in 2014, Tassi said.
A number of California manufacturers have reached out to Tassi seeking to expand. Trouble is, some of them want as much as 500,000 square feet of space, and such massive properties don’t exist here.
That means Las Vegas could lose business to Phoenix, Salt Lake City and other markets richer in big spaces. For that, and because companies typically don’t move unless they need to make a big, capital investment, don’t expect a “mass exodus” of California transplants, Tassi said.
Even through the recession, retail stayed stronger than any other sector. Vacancy maxed out at around 13 percent, said Penny Mendlovic, a senior associate. In the fourth quarter, it dropped to 11.5 percent. The rate will likely stay above 10 percent for at least the next couple of years.
Still, the year ahead will bring new retailers, such as Conn’s, a Texas-based furniture and appliance chain scheduled to open its first local store at Tropicana Avenue and Pecos Road. On the west side, Tivoli Village is bringing in a large hardware-store concept from California, and the Shops at Summerlin will finally open Oct. 9.
Thanks to the recession’s housing slowdown, the locals gaming market will remain fairly saturated in 2014, said John Knott, executive vice president. Without significant job or housing growth, the market won’t need new off-Strip properties.
The Strip, on the other hand, is “now on the way back” from a “tremendous downturn,” Knott said. High-end properties such as Wynn Las Vegas and the Palazzo are growing room rates and revenue at 5 percent to 6 percent, and the rest of the market is expanding at 2 percent to 3 percent. There’s also more activity in land purchases, which means “people are starting to see a vision for development,” he said.
Knott said SLS Las Vegas, being refashioned from the former Sahara, will compete for business with the Hard Rock Hotel and the Palms when it opens in fall. He also said he expects Genting Group to break ground on its Resorts World Las Vegas sometime in 2014.
Sure, loads of investors have flocked to the local market for bargains. But the investment picture is a bit murky, because Las Vegas can’t shake its rap as a distressed market, Senior Vice President Charles Moore said.
That’s made it tough, for example, to find investors to take over a pharmacy inside a high-rise condominium tower on the Strip. The failed Fontainebleau looms across the street, and there’s no Resorts World Las Vegas yet. There’s so little traffic inside the pharmacy that the company pulled its pharmacist out of the spot. Those aren’t details New York investors want to hear, Moore said.
Plus, the best deals are long gone. The market “has been picked over,” so it’s harder to find properties that investors can add value to in a big way, Moore said.
Interest rates could help, though. Moore said he doesn’t think rates will jump more than 1 percentage point in 2014, leaving them at historically low levels that will mean still-positive returns for investors.
Contact reporter Jennifer Robison at firstname.lastname@example.org. Follow @J_Robison1 on Twitter.