Earl Green, right, and Tom Simenson remove aluminum storefront metal from a truck on Wednesday while installing windows at a Long John Silvers/KFC restaurant under construction in North Las Vegas. Las Vegas slipped seven spots from a year ago in a national retail index. Photo by John Locher. Click image for enlargement.

Rapid population growth and rising median household incomes are keeping the Las Vegas retail market healthy through the first half of the year, though the city slipped seven places from a year ago in a national retail index.

Las Vegas fell to No. 19 from No. 12 in 2005 in a report from Marcus & Millichap brokerage firm that ranked 42 cities based on a series of supply-and-demand indicators such as population, employment, retail construction and vacancy rates.

Part of the problem is that retail developers have not been able to compete with home builders for 10- and 15-acre potential retail sites, Hank Gordon of Las Vegas-based Laurich Properties said.

"We have not been able to buy a shopping center site in many years due to home builders who come in and pay two to three times more than what we can afford," the developer said Wednesday from his California home. "Retailers say they can only pay X amount of dollars in rent and we can only use 25 percent of the land for building. The rest is parking and landscaping."

Gordon said he couldn't build a shopping center if the land was free, based on what some retailers want to pay. "Construction costs aren't going to come down. Something has to give," he said.

The market is still enjoying healthy retail sales growth and tightening vacancy rates among retail properties, said Christopher LoBello, regional manager of Marcus & Milli- chap in Las Vegas.

Clark County retail sales have nearly doubled from $17.4 billion in 1998 to $32.4 million in 2005, according to the Nevada Department of Taxation.

"The local retail sector continues to expand, following in the footsteps of residential growth," LoBello said. "The job market remains strong and gains in median household income are supporting growth in retail sales, somewhat. There's not a substantial gain in income."

Employment will expand by 3.8 percent this year following job growth of 6.8 percent in 2005, the Marcus & Millichap report noted. Of the 34,000 new jobs, about 9,500 will be in construction trades.

That still won't be enough to meet the demand for new construction projects in Las Vegas, said Tim Snow, president of Thomas & Mack Development Group.

"There is going to be a critical shortage in the trades, which plays hell on the (building) costs and plays hell on getting the job done," he said.

Marcus & Millichap projects 1.7 million square feet of retail inventory will be added to the market, which stands at 42.2 million square feet. About two-thirds of it is coming in the fast-growing southwest and northwest areas around the Las Vegas Beltway.

Among the larger projects under construction is the 940,000-square-foot Arroyo Market Square being jointly developed by Laurich and EJM near the Las Vegas Beltway and Rainbow Boulevard. The $150 million project is expected to be completed in second quarter of 2007. It will be anchored by a 207,000-square-foot Wal-Mart, Home Depot and Sam's Club.

American Nevada Co. is developing the 20-acre Aliante MarketPlace shopping center at Aliante Parkway and the Beltway in North Las Vegas, anchored by a 65,000-square-foot Smith's supermarket that opened in April.

Retail space will also be added to urban areas as most of the high-rise condominium projects under construction contain ground-floor retail.

Vacancy continues to tighten with construction lagging behind absorption. Vacancy is expected to fall 60 basis points this year to 4.2 percent.

Neighborhood shopping center vacancy is expected to drop 250 more basis points to 3.5 percent by year's end and below 3 percent in the Green Valley area. Rents will be pushed as high as $25 a square foot in the southeast submarket, LoBello said.

The valley's overall average asking rent is forecast to increase 3.4 percent to an average of $21.73 a foot as lower vacancy allows property owners to raise rents.

"It's going to depend on location, the project and the tenant mix," LoBello said.

Interest in Las Vegas retail assets has surged over the past year, led by out-of-state investors, mostly from California. Median prices for multitenant properties have climbed to more than $200 a foot for both strip centers and larger properties. Green Valley is up to $278 a foot.

LoBello said Marcus & Millichap's retail index shows some of the most dramatic shifts in market positions he's seen in several years.

The reason is twofold, he said. The nation's economic recovery cycle has been bifurcated, with those areas quick to recover now falling into a more sustainable growth pattern. Markets that lagged the recovery are experiencing accelerated economic growth over the forecast horizon.

Secondly, the red-hot housing market has cooled, leaving areas such as Las Vegas that recorded a large discrepancy between home price appreciation and income growth exposed to a greater risk of a market correction, which would adversely affect consumer spending.

San Diego and Orange County, Calif., maintained their 1-2 rankings in the index from last year due to strong retail market fundamentals. Oakland, Calif., jumped seven places to No. 3, while New York City-Manhattan and Phoenix round out the index's top five markets.