Commercial lease rates plummet

Nora Armenian understands that business has taken a dive for most of her commercial property tenants and some of them -- like Ooh Wee hair salon -- never come up for air.

The broker-owner of Vegas Valley Commercial has put the 1,130-square-foot salon at Whitney Ranch Business Park on the market for $1.25 a square foot, reduced from $1.75 a foot. It's a "turnkey" location, which means all the equipment and fixtures are in place to start cutting hair today.

Armenian said she's had to sit down with several tenants in the past few months who were late on their rent and assess their cash flow to work out a payment plan suitable for both parties.

"We just try to listen and see what makes sense," Armenian said Tuesday during a tour of the vacated hair salon. "The problem is people running the business. I'm only the agent, but some things are not making sense. If a startup business is not generating funds and the owner is taking a salary, they're hurting themselves even more."

Finding new tenants is extremely difficult today, she said. Retail and office space is sitting vacant for six to eight months, compared with two to three months for the same property a couple years ago.

Very few individuals are taking the initiative to start a new business because of the difficulty in obtaining a small-business loan from the banks, Armenian said.

Simmons Plaza stands as a true testament to the state of commercial real estate in Las Vegas, 41,000 square feet of new retail space sitting empty at Lake Mead Boulevard and Simmons Street.

Base rent is starting at $1 a square foot, well below the $2.06 average market asking rent. That's the bare-bones rate, known as triple-net, which means the tenant pays for common area maintenance and general services.

A 2,500-square-foot freestanding pad with drive-through access had been taken by Dunkin' Donuts for $3 a square foot, but came back to the landlord when the doughnut chain filed for bankruptcy.

Retail follows residential, so it's inevitable that some commercial properties are going to be taken back by the banks, David Zacharia of DZ Realty said. That's still two to three months away, he said.

"It's not as bad as most economic reports are showing," Zacharia said of the market. "They're painting it with a broad brush. People like me have to spend more time with mom-and-pop retailers. They're still out there, still looking, but they're demanding more from landlords."

Rising vacancy in the commercial real estate markets has put downward pressure on rents, which peaked at about $2.25 a square foot in 2007.

Las Vegas-based Applied Analysis reported 9.8 percent vacancy for 51.3 million square feet of retail space in Las Vegas for the second quarter, compared with 6.3 percent vacancy a year ago. Rent fell from $2.18 to $2.06 over the same period.

With 5 million square feet of empty retail, landlords are using pricing as a "release valve" to spur demand and capture tenants in a relatively weak market, Applied Analysis project manager Jake Joyce said. Newer properties carrying a higher cost basis may be severely affected, he said.

Frank Elam of Vegas Valley Commercial said every landlord is reducing rent to fill vacancies.

He's got office space in Henderson for $1 a square foot on one- to three-year leases. A closed automobile dealership at Boulder Highway and Water Street is listed for 75 cents a foot.

"They're all doing the same thing. They've all got vacancies," Elam said. "We're trying to get someone on a temporary basis, a one-year lease with option. You can't do a long-term lease on those properties because it'll kill your property, especially if you get the type of inflation I'm expecting. You never know what it's going to be in five years. It could be $5 (a foot) the way Obama is spending money."

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