Las Vegas office space, now for less than $100 per square foot

Attracted by bargain prices, investors have been acquiring Las Vegas office properties at 50 percent to 80 percent discounts from what they were four to six years ago, a research analyst for brokerage Marcus & Millichap said.

The median price for office space declined 29 percent, to $98 a square foot in the third quarter, largely due to the disproportionate number of sales involving distressed or bank-owned properties, Marcus & Millichap reported in its third-quarter market update.

It's the first time in more than a decade that office properties are selling for less than $100 a foot in Las Vegas, said Erica Linn, a senior analyst for Marcus & Millichap in Phoenix.

Bank-owned transactions will take center stage in Las Vegas over the next year as lenders clear their balance sheets of reclaimed assets, either through individual listings or large-scale auctions, she said. Transaction volume nearly doubled over the past 12 months, driven by a surge in REO activity, or real-estate owned sales.

Discounted prices have attracted a growing number of out-of-state investors seeking quality assets in prime locations. During the past 12 months, five deals have closed at more than $10 million each, compared with none in the previous period.

"Everybody's looking," said Mike Dunn, of Commerce Real Estate Solutions in Las Vegas. "It's a different cast of players. Those who bought at the high end are in survival mode. This is more of a bottom-fisher's market. If it's priced right, there are people out there buying."

Dunn has the former Sun West bank branch at 5830 W. Flamingo Road listed for $2.1 million with a pending sales contract. He expects to close escrow in 10 to 15 days.

Dunn said he just sold the former Southwest Eye Institute on Sahara Avenue for $57 a square foot, which is more in line with what investors are willing to pay, while a new six-story building developed by bankrupt Plise Development sold for $53 a square foot.

"Where you're seeing prices in the $90s and low $100s is typically with end users, and the tenant improvements have to be such that they don't put another $50 a square foot into it for their use," Dunn said. "Maybe $10 to $15 a foot, that justifies it as a good value."

While smaller local buyers have driven deals in the $1 million to $2 million price range over the past year, large private investors focusing on long-term appreciation have jump-started the $5 million-plus segment, Marcus & Millichap's Linn said.

Smaller properties priced at less than $800,000 likely will garner interest from owner-users with access to Small Business Administration financing, she said.

Marcus & Millichap forecasts a drop in Las Vegas office vacancy of 20 basis points this year, which would put it around 24.5 percent, with limited new construction. After coming to a complete standstill last year, office construction is up to about 145,000 square-feet -- about the size of a single big-box store -- in 2011.

Asking rents will slip 1.8 percent in 2011 to an average of $23.67 a square foot, while effective rates -- including landlord concessions -- will decline 2.3 percent, to $17.87 a foot.

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