Commercial real estate reflects healthy economic recovery

Commercial real estate may not grab the headlines the housing sector claims, but the industry’s fortunes are just as tied to overall economic health.

And recent commercial indicators reflect ongoing recovery in both the local economy and the Las Vegas Valley’s retail, industrial and office markets.

First-quarter numbers from local research firm Applied Analysis and commercial brokerage CBRE Las Vegas reveal where growth is strongest, and where commercial space continues to struggle.

Taxable retail sales in Clark County surged to a record $36.7 billion in the 12 months ending in January, said Brian Gordon, a principal in Applied Analysis.

And where there’s spending, there are new stores.

Consider the market entries of Swedish furniture retailer IKEA and sports shop Topgolf, which promises “the boldest new concept in sports entertainment” when it opens its MGM Grand store in early 2016. Also indicators of healthy retail construction activity are the completion of the 60,000-square-foot Grand Bazaar Shops at Bally’s; the wrap-up of an 87,900-square-foot Las Vegas Athletic Club at Decatur Boulevard and Tropical Parkway; and 20,000 additional square feet of space at Green Valley Crossing, at Horizon Ridge and Green Valley parkways.

Leasing activity was up as well, as tenants including family recreation center Flip N Tag, Colleen’s Classic Consignment and Total Wine & More all taking down 34,500 to 41,500 square feet of space on the valley’s west side.

Put the new construction and leasing together, and retail’s vacancy rate stayed below 10 percent for the eighth straight quarter, Gordon said.

CBRE Las Vegas statistics showed a 28 percent drop in retail vacancies since 2011, said Matt Bear, vice president of brokerage services in the company’s Global Gaming Group’s retail division.

Retail employment grew 4.2 percent, or 7,700 jobs, in the quarter, Gordon said.

Applied Analysis also counted more than 2.8 million square feet of retail planned or marketed, mostly in future phases of existing shopping centers.

TJ Maxx owner TJX Cos. was behind the quarter’s biggest industrial completion, a 400,000-square-foot expansion of its distribution center at 4100 E. Lone Mountain Road. Updike Distribution Logistics, which stores and ships products for retailers and other businesses, took down 65,600 square feet at 4550 Engineers Way in North Las Vegas. Walmart Stores East LP absorbed 52,800 square feet at 4711 Mitchell St.

In all, the market’s net absorption was 1.34 million square feet, about triple the 470,192 square feet in 2014’s first quarter and the best three-month period since the second quarter of 2008, said Michael Newman, managing director of CBRE Las Vegas.

North Las Vegas accounted for half of the quarter’s activity, while southwest Las Vegas claimed 34 percent, Newman said.

Notable industrial users with ongoing construction projects in the quarter included Catamaran, Konami Gaming and Ainsworth Game Technology.

Vacancies ended the quarter at 7.4 percent, down from a high in 2011 of 17 percent, according to Applied Analysis. If current trends hold, the vacancy rate would fall below 5 percent by year’s end.

Industrial-related jobs spiked 6.2 percent, at 7,600, Applied Analysis reported.

The company counted 2.1 million square feet of space under construction, up from 1.4 million square feet a year earlier.

The valley’s office market has lagged other sectors, as high vacancy rates have held back new construction.

Vacancies did dip to a six-year low in the quarter, according to CBRE Las Vegas. But at 20.3 percent, the market remains oversaturated.

Some submarkets are worse off than others: Class C space, which includes functionally obsolete suites along major traffic corridors on the east side, had a 27.2 percent vacancy rate, while high-end Class A centers were 19.2 percent empty, according to Applied Analysis.

Also, there is an emerging shortage of large spaces for call centers or back offices, said Brad Peterson, a senior vice president with CBRE Las Vegas.

The supply crunch is significant enough that tenants are looking at unconventional options. New York-based Sutherland Global Services has asked for state tax incentives to open a call center in the abandoned Dillard’s store at The Boulevard Mall on Maryland Parkway.

By geographical area, the southwest fared strongest in the first quarter, as increasing numbers of tenants sought space along the 215 Beltway, said Rachel Stevens, a senior analyst with Applied Analysis. The southwest posted 98,300 square feet of net move-ins, the bulk of the valley’s 113,700 square feet of quarterly absorption.

Employment in professional and business services such as accounting and law firms grew 1.3 percent, or 4,400 jobs, in the quarter. The city’s jobless rate in 2014 fell below 8 percent for the first time in six years.

“With a high correlation between office market fundamentals and employment growth, the demand for office space should continue to trend upward and pressure developers to remedy the shortage of supply,” Peterson said.

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