Friday, July 16, 2004
Copyright © Las Vegas Review-Journal

Boom in building continues

Second quarter saw 500,000 square feet of new office space

Doug Roberts, partner with Panattoni, on Wednesday stands next to a sign for Lamb Business Center at the corner of Lone Mountain Road and Lamb Boulevard. Panattoni is building a 100,000-square-foot manufacturing plant for Artesian Spas there. Photo by Samantha Clemens.

Rosalind Holland has heard the naysayers cite a lack of developable land and the ongoing drought as impediments to continued expansion in Las Vegas Valley.

The numbers would contradict them, said Holland, research analyst for Grubb & Ellis.

Even as office vacancy rose to 13.8 percent in the second quarter, developers have 1.4 million square feet under construction.

Nearly 500,000 square feet of new office space came online during the period, though much of it is sitting vacant, Holland said.

"You would think vacancy is going to go up with 1.4 million feet under construction. We don't have that kind of absorption," she said.

"But people are still building. Obviously someone thinks they know what they're doing."

The retail sector has remained healthy, with vacancy holding steady at 4.7 percent in the second quarter, unchanged from the first quarter, said Scot Marker, retail broker for Colliers International.

Most of the new activity is coming in the hot southwest part of the valley. Sears Grand is entering the market with a 200,000-square-foot store at Flamingo Road and Grand Canyon Drive and another group is seeking 80 to 90 acres for a regional mall, Marker said.

"As far as retail, we're seeing a ton of furniture retailers based on the success of RC Willey and the Furniture Mart and they're willing to pay higher rents," he said. "I heard RC Willey is looking for another location and Ashley and Lane are looking to do deals in the northwest."

Vacancy in the industrial market decreased to 8.7 percent during the second quarter, down from 9.2 percent the previous quarter and 9.9 percent a year ago, said Jason Salmon, director of real estate services for Applied Analysis.

The market added 184,000 square feet in the quarter, bringing the total inventory to 77.2 million square feet, while net absorption, or the demand for new space, was 590,000 square feet.

"Industrial development has recently displayed a respectable balance between meeting the needs of users and fulfilling the requirement to expand," Salmon said.

Demand for industrial space is strong and the overall outlook for the market is optimistic as businesses continue to flee California, said Donna Alderson, a broker for CB Richard Ellis.

She recently negotiated a 100,000-square-foot deal for Tennessee-based May Manufacturing. The company is moving its Artesian Spas manufacturing plant from Victorville, Calif., to North Las Vegas and will employ up to 150 people.

Alderson said companies leaving California unilaterally cite the high cost of workers' compensation insurance, employee benefits and the overall cost of doing business there.

Panattoni Development will start construction on the $17 million project in August, the first of three buildings planned for the 26-acre Lamb Business Center near Lone Mountain Road.

Doug Roberts, partner in Sacramento, Calif.-based Panattoni, said he sold off one-third of the land to lower his "dirt basis," which is what industrial developers pay for raw land, usually $4 to $5 a square foot.

"I now regret it because I'd like to have more land," he said.

John Restrepo, principal of Restrepo Consulting Group, said industrial remains the most stable of the three commercial markets, rising to a rating of 97.3 on his index that measures the general health of the valley's office, industrial and retail markets.

That's up from 96.4 in the first quarter, primarily because of a slight increase in job growth and a decrease in vacancy.

Roberts said Las Vegas has yet to reach its potential in the industrial market.

"If you look at the population base and compare it with Reno, Sacramento, Salt Lake City, you're still underbuilt," he said.

"Las Vegas is a 'tweener, four hours from Los Angeles. You're faced with huge population growth, 36 million tourists coming here. It's a huge consumer base but the industrial market is stagnant. There's nowhere to build."

He said Apex Industrial Park is for speculators, people who can be "pioneers." Panattoni looks at established areas such as North Las Vegas.

"I've got to go into production. My guys are asking me, `When can we get the deal done?'"

Panattoni is breaking ground later this year on the second phase at Creekside Business Park near Shadow Creek Golf Course in North Las Vegas.