Las Vegas retail market worsens as vacancy rate rises

The retail market in Las Vegas worsened in the first quarter as the vacancy rate rose to 12.3 percent, up from 10 percent in the same quarter a year ago, RGC Economics consulting firm reported.

Vacancy has climbed from 5.8 percent since December 2007, the start of the recession.

Net absorption, or the difference between the amount of retail space taken and space vacated, was negative 430,000 square feet, leaving 5.4 million square feet empty in the total inventory of 43.9 million square feet.

Average asking rent declined to $1.49 a square foot from $1.65 a year ago.

John Restrepo, principal of RGC Economics, said he thought the anchored retail market had found its floor in the last quarter of 2010, but that appears to have been a "trap door."

Retail is suffering from lack of job creation, high consumer debt levels, rapidly rising prices for food and gasoline, and the increasing movement to Internet shopping, he said.

Facing those deterrents, Executive Home Builders is opening the first phase of Tivoli Village, a $650 million retail and office development at Rampart Boulevard and Alta Drive, this month. The project was announced in 2005 and has been delayed multiple times from its scheduled 2009 opening.

Tivoli will have 700,000 square feet of boutique retail, restaurants, cinemas and executive office space. Plans for 340 condominium units in two five-story towers and a 10-story tower have been shelved.

With empty shopping centers dotting the valley and high-end properties such as The District at Green Valley Ranch and Town Square in foreclosure, some observers question the need for any new retail development in Las Vegas.

"I think part of it depends on where the retail is located," Restrepo said Tuesday. "Tivoli Village is near Summerlin in a relatively high-income area with limited retail. It'll do reasonably well based on location. Will it do gangbusters like it would have in 2003? No, but it'll do OK."

Colliers International reported 11.5 percent retail vacancy in the first quarter, the highest level yet recorded by the brokerage firm. Vacancy has increased for 14 quarters and is up 1.8 percentage points from a year ago. The highest vacancy of 16.8 percent was found in the downtown submarket. The lowest of 9.5 percent was in the southwest valley.

Average asking rental rate remained stable at $1.55 a square foot, unchanged from the previous quarter and down from $1.71 a year ago. Asking rents in the southwest submarket have dropped by 55 cents in a year, taking it from one of the more expensive submarkets to near the valley average.

Not all retailers are hurting in Las Vegas.

Greg Danz of Broadacres Marketplace and Event Center, formerly known as Broadacres Swap Meet, said he now has more than 1,200 vendors and they're telling him that business is better this year than in recent years.

More than 35,000 people shopped the swap meet on a recent weekend that featured a concert by a Heart tribute band.

"It could be that we made Broadacres a lot nicer, but it seems customers have more money in their pocket," Danz said. "We rode through the downturn pretty good."

Newport Diversified, the Los Angeles-based firm that bought Broadacres in October 2007, has invested more than $40 million in the property, including acquisition of an additional six acres to expand the parking lot and building an event center that seats 2,000 people, Danz said.

Broadacres has aligned itself with the Hispanic community, a culture that embraces outdoor swap meets, he said. They're 85 percent to 95 percent of his business.

The retail market will likely remain somewhat volatile over the next 12 months as the sector seeks out a "new equilibrium," said Brian Gordon, principal of Applied Analysis business advisory firm.

Landlords will continue to operate in a difficult financial environment as average asking lease rates have declined by nearly one-third in the past three years, he said. With millions of square feet vacant and caution on the part of retailers, building owners are looking at tighter operating margins.

Applied Analysis showed 10.4 percent vacancy for 51.2 million square feet of retail space and asking rents of $1.53 a square foot in the first quarter.

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