Commercial real estate sectors slide further in third quarter

Every sector of commercial real estate in Las Vegas showed continued weakness in the third quarter, although there are some indications of stabilization, a research analyst for Colliers International said Thursday.

While some economists are predicting a national economic recovery by the end of the year, it's probably not in the cards for Southern Nevada, Matt Stater said during a quarterly market presentation at Four Seasons hotel.

"We're probably seeing the end of the recession nationally if not this quarter, then next," he said. "That's what the indicators are showing. But our local indicators are still trending down."

Office vacancy rose to 22 percent in the quarter, compared with 21.8 percent in the previous quarter and 18 percent in the same period a year ago. Asking rents dropped to $2.32 a square foot, down 4 cents from the second quarter and 12 cents lower than a year ago.

Net absorption, or the amount of office space taken by tenants, remained negative at 39,154 square feet, but it's not as bad as the 272,627 square feet of negative net absorption in the previous quarter and 341,500 square feet of negative absorption from a year ago, Stater pointed out.

CB Richard Ellis brokerage in Las Vegas also reports 22 percent office vacancy, but shows lower asking lease rates of $2.02 a square foot and nearly 284,000 square feet of negative absorption.

Las Vegas has a significant amount of sublease space, or "shadow" space, on the market that's not captured in statistics, CB office broker Bret Davis said. Although it's hard to quantify, he believes that space accounts for another 3 percent to 4 percent vacancy.

Local economic fundamentals such as employment and the housing market need to improve before the office market can rebound from the recession, he said.

The industrial market, usually the strongest segment in Las Vegas, has seen vacancy shoot to 13.3 percent in the third quarter, up from 9.9 percent a year ago, according to Colliers. Asking rents have fallen to 66 cents a square foot from 78 cents last year.

Dan Doherty, industrial broker at Colliers, said tenants can find 3,000 square feet of industrial space in North Las Vegas at cheaper rents than 30,000 square feet, somewhere around 30 cents a square foot when it used to be three or four times that amount.

"It's just a complete switch in the dynamics of the market," Doherty said. "For the first time in Las Vegas, this recession has crushed the mom-and-pop businesses. We've lost that incubator space."

Retail is just as bad. Rising unemployment and a troubled housing market have curtailed retail tenant demand across Las Vegas, forcing owners to lower rents prior to entering lease negotiations, according to a third-quarter report by Marcus & Millichap real estate investment firm.

Effective rents have decreased for five consecutive quarters as operators struggle with businesses shuttering, especially in the outer reaches of Las Vegas Valley.

Concerns regarding the duration of Las Vegas' downturn, as well as shifting investment strategies and tighter underwriting standards, have slowed sales activity during the past year and will continue to weigh on the market for the rest of the year, Marcus & Millichap regional manager John Vorsheck said.

Developers are scheduled to complete 2.3 million square feet of retail space this year, compared with 5.9 million square feet in 2008. Soft tenant demand will push vacancy to 11.8 percent by the end of the year, a 330 basis point increase from 2008, the brokerage reported.

Colliers showed 8.6 percent retail vacancy with average asking rent of $1.83 a square foot, while CB put the vacancy at 13.2 percent with asking rent of $1.82 a foot.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.