Sale shows that landlords will pay premium for prime Las Vegas property

It wasn’t long ago that Las Vegas’ office market seemed like it was on life support.

Developers built a glut of properties during the bubble years, and much of the space was filled by other real estate firms. After the economy crashed, tenants closed shop, landlords lost properties to foreclosure, construction ground to a halt, and the vacancy rate hovered around 20 percent to 25 percent.

The office market has picked up the past few years but, overall, has been slower to recover than other types of real estate.

A recent sale, however, was more lucrative than usual.

Griffin Capital Corp., a Southern California investment firm, bought International Game Technology’s three-story office building in southwest Las Vegas for $66.5 million late last month.

The sale amounted to $299 per square foot, more than triple the average rate investors had paid for Southern Nevada office properties this year, according to Colliers International data.

The seller, Panattoni Development Co., bought IGT’s roughly 38-acre campus in December for $75 million. It now has flipped a nearly 13-acre portion for almost 89 percent of what it paid for the entire parcel.

Investors didn’t stop buying office buildings or other commercial properties here when the economy tanked. Las Vegas was a bargain, albeit a risky one, and some investors bought in bulk, figuring rents and occupancy rates eventually would rise.

But does Griffin’s pricey deal mean the office market is hot again, and that talk of Las Vegas’ high vacancy rate can finally be put to rest?

No, but the sale at least shows that landlords will pay top dollar for a newer, higher-end property that’s fully leased by a powerhouse tenant, even if the market as a whole isn’t stellar.

IGT, which has occupied the facility since it was built in 2008, is on a 15-year lease with annual rent hikes, said a broker involved in the sale. The slot machine maker also has a stock market value of more than $5 billion.

When the sale was announced, Griffin’s chief investment officer, Michael Escalante, told me his company paid a fair price, given the quality of both the tenant and the building.

Some aspects of Las Vegas’ office market are stronger than others. Class A properties in the southwest, like IGT’s building, have a combined 9 percent vacancy rate and average asking rents of $2.66 per square foot, according to Colliers.

Overall, the market had a 16.7 percent vacancy rate in the second quarter and average asking rents of $1.99. During the same period in 2011, when the economy was in far worse shape, the vacancy rate was 24.3 percent and landlords asked $2.01, according to a report in 2012 by Colliers.

Will the office market ever fully recover? Landlords can only hope, but good luck finding tenants who don’t mind a bargain.

Contact Review-Journal writer Eli Segall at (702) 383-0342. On Twitter at @eli_segall.