Build-to-suit projects lead way in commercial recovery

As Southern Nevada’s commercial sector continues its long slog back to health, some winners and losers are emerging.

To see who’s surging and who’s slowing, consider Colliers International’s third-quarter market report. The study found that build-to-suit properties are driving much of the local recovery, especially in industrial and office markets. Plus, some subsectors still struggle with recession-like vacancy levels and job losses.

First, about those build-to-suit projects, which are all the rage these days. The office market added more than 575,000 square feet of custom buildings in the third quarter for organizations including Zappos.com and the United Brotherhood of Carpenters. And the industrial segment has 800,000 square feet of build-to-suit projects on the drawing boards for late 2013 and early 2014.

Build-to-suits are both a help and a harm. They create construction jobs, but they also take potential occupancy from existing projects that stand empty. And there are plenty of those. Colliers International’s numbers showed quarterly vacancy rates of 12.3 percent in industrial space and 22.3 percent in office space.

Custom projects can hide important trends, too. Without those build-to-suits, the office market would have reported negative absorption of more than 60,000 square feet in the third quarter, said John Stater, Colliers International’s local research director. That negative absorption suggests office tenants may have returned to downsizing or going out of business in the quarter after taking a break for cuts in 2012, Stater said.

That could especially be the case in the medical-office submarket, which posted vacancy of 22.6 percent — its highest level since 2004. Stater blamed health-industry consolidation; unlike the rest of the economy, the sector cut jobs year over year in August.

The brightest spot? That continues to be retail, which saw its ninth straight quarter of positive net absorption as retailers added nearly 5,000 jobs year over year in August. The sector’s vacancy stands at 9 percent.

■ Southern Nevada’s apartment market is bouncing back in lockstep with the housing sales segment.

Marcus &Millichap’s latest Apartment Research Market Report predicts dropping vacancy rates, rising rents and continued investor interest in local rental communities.

Credit the better times partly to labor-market improvements. Job growth in 2012 and 2013, as well as higher personal incomes, are finally encouraging household formation, which creates new tenants for rental communities, the report said. Slower apartment construction is helping, too: Developers will finish 380 units in 2013, well below the 1,300 doors they added in 2012.

Put it all together, and the Las Vegas area should see apartment vacancies drop to 8 percent by year’s end, down from 9.1 percent in 2012. Rents should rise as well, gaining 1 percent to $727 a month. That would be a noticeable turnaround compared with 2012, when lease rates fell 2.7 percent. It would also be the first annual rent increase in six years, Marcus &Millichap said.

Stronger fundamentals mean California-based investors will continue to buy up local apartment complexes, particularly higher-end Class A and B properties, the report said. Returns in the local market remain considerably better than in coastal areas, where yields have fallen below borrowing costs.

■ The Mortgage Bankers Association released new quarterly numbers that shed a little more light on Nevada’s home-loan delinquency rate.

Overall, Nevada actually ranked in the middle of the pack — No. 22 — for past-due loans in the third quarter, with 7.09 percent of all mortgages at some stage of delinquency. That’s down from No. 20 a year earlier, the association said.

But in really late loans, or mortgages that are 90 days or more past due, Nevada ranked No. 2, at 4 percent. Only Mississippi placed higher.

Include homes already in foreclosure, and 11.77 percent, or 51,600, of the state’s home loans are in distress.

Analysts with local housing research firm SalesTraq said the high number of loans past due or in foreclosure “limits the number of homes that should be transitioning into new hands.” Still, resale inventories have started to tick up. The market has 2.8 months of supply, up from about a month’s inventory over the summer.

The latest Mortgage Bankers Association numbers don’t factor in the Homeowner’s Bill of Rights, which took effect at the beginning of the fourth quarter on Oct. 1.

■ Looking for new, high-tech ways to find residential clients?

Well, don’t waste too much time on it, said a new study from the National Association of Realtors. The report, released Nov. 7 during the trade group’s national convention in San Francisco, found that 97 percent of broker-owners and agency executives still get their best leads from old-fashioned marketing tactics such as open houses, client referrals, for-sale signs and brokerage walk-ins.

Old school handily beat out Internet lead sources: Just more than half — 51 percent — said social media provided worthwhile leads. Also, 42 percent cited Realtor.com, the association’s website, as a valuable lead generator. Trulia (32 percent) and Zillow (31 percent) got decent market share as well. The biggest thumbs down went to Craigslist. Nearly 70 percent said the website doesn’t deliver.

■ Bill Skupa and Gino Vincent of MINT Property Group represented Debco LLC in its purchase of a 6,421-square-foot office building at 1781 Village Center Circle, inside Summerlin’s Hills Center Business Park. The 7-year-old building is 100 percent occupied. Dave Sundaram of Odyssey Real Estate Capital represented seller J&M real estate Holdings LLC in the $1.66 million deal.

■ Nevada Land brokered several property sales in recent weeks.

Alberto Jauregui represented the buyer in the $1.33 million sale of a 14,400-square-foot building at 711 Mall Ring Circle in Henderson. Lee &Associates represented the seller.

Jauregui also represented the seller of a 3,900-square-foot restaurant and lounge on 0.19 acres of land at 1815 E. Charleston Blvd. The property sold for $530,000.

Luis Tapia Garcia represented the buyer of a 0.52-acre land parcel at 2834 E. Charleston Blvd. Commerce Real Estate Solutions represented the seller in the $344,000 agreement.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com. Follow @J_Robison1 on Twitter.