With roughly one-fourth of Las Vegas office space sitting empty, Bob Boykin feels good about securing a 60,000-square-foot, 10-year lease renewal with Wells Fargo Bank, anchor tenant of the landmark 18-story tower at Hughes Center since 1987.
It's a significant share of nearly 160,000 square feet in lease transactions completed this year at the 100-acre business center, home to some of Las Vegas' most respected financial and legal firms.
"That's a big number in this challenging market," said Boykin, managing director of leasing for Crescent Real Estate Holdings, which acquired Hughes Center in 2004.
Second-quarter office vacancy rose to 23.7 percent for 35.2 million square feet of inventory, Grubb & Ellis commercial brokerage in Las Vegas reported.
Net absorption, or the amount of space taken minus the amount of space vacated, was negative 487,618 square feet, equivalent to about one-third of the space at Hughes Center. Asking rents are $2.55 a square foot for premium Class A office space and $1.86 a foot for Class B space.
Vacancy across all Las Vegas office submarkets fluctuated slightly in the second quarter, with only the north and northwest areas showing a decrease in vacancy, Grubb & Ellis research manager Dave Dworkin said.
Those two submarkets have always been highly desirable because of historically low asking lease rates and best value for vacant land, Dworkin said.
"North Las Vegas remains one of the most affordable sections of town and is well-positioned for future development," he said.
Boykin said Hughes Center is running at about 18 percent vacancy, far below the average for Class A office, with full-service rental rates of $2.65 to $3.45 a square foot, depending on the building.
The center's accessibility to households in the Green Valley and Summerlin communities, along with its proximity to Strip entertainment and McCarran International Airport, makes the office park one of Las Vegas' more desirable locations, Boykin said.
CB Richard Ellis brokerage reported 25.4 percent office vacancy, up from 24.6 percent in the previous quarter. A significant amount of sublease space -- under contract but empty and available for lease -- is not captured in the statistics and could add another 3 to 4 percentage points to market vacancy.
Despite average lease rates of $1.84 a square foot, down 57 cents from a year ago, leasing momentum lags expectations, CB Richard Ellis' second-quarter office market report said. Consequently, no new buildings started construction during the period.
Leasing activity did pick up in the second quarter with a handful of tenants signing new leases or renewing existing leases.
Boykin said Litigation Services moved from downtown Las Vegas into 15,000 square feet at Hughes Center, and two law firms have signed letters of intent to lease another 16,350 square feet.
Tivoli Village, under construction at Rampart Boulevard and Alta Drive, signed Las Vegas law firm Kolesar & Leatham as the first tenant to occupy a portion of 146,000 square feet of Class A office space expected to come to the market in the spring.
Other noteworthy office transactions include the Public Utilities Commission of Nevada signing a nine-year lease for 140,000 square feet at 9075 W. Diablo Drive, valued at $3.52 million.
Colliers International showed second-quarter office vacancy at 23.5 percent, compared with 21.3 percent in the year-ago quarter. Asking rent rates declined to $2.17 a square foot from $2.36 a year ago.
The amount of distressed office space -- properties that have received a notice of default or are in some stage of foreclosure -- increased to 4.4 million square feet during the quarter, up from 3.6 million square feet in the previous period, the brokerage reported.
Office will be the last commercial sector to recover because of the massive overbuilding during the boom, real estate consultant John Restrepo said.
Tenants are struggling to pay their rents in this Great Recession and property owners are having trouble servicing their debt. Also, employers won't be going on a hiring binge any time soon, he said.
"We believe 2010 will be another challenging year for the office market," Restrepo said. "However, the rate of decline looks like it will be slightly less than what was experienced in 2009, assuming we don't see a double-dip recession."
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