Las Vegas Valley experiences explosion as distribution hub
When Amy Ogden started working in Southern Nevada real estate in 2006, warehouse tenants were mostly tasked with trucking goods to hotels and convention halls.
New projects also were poorly designed. Developers would squeeze a warehouse to the edge of its land, resulting in tight parking, bad loading areas and, Ogden recalled, it led to a nickname for such buildings.
“It was a broken box,” said Ogden, an industrial property broker with Logic Commercial Real Estate.
Firms still haul goods to the Strip, but the region’s warehouse market has exploded in growth — making Southern Nevada much more than a place where people deliver food, linens and the like to Las Vegas’ resort corridor.
Through a combination of factors including the huge growth of e-commerce, available land and proximity to Southern California, America’s casino capital has emerged as a competitive player in the warehousing and distribution industry.
Rising interest rates have taken some wind out of the market’s sails, industry pros say, and the U.S. economy has been wobbly. Plus, any real estate deal, and certainly any building boom, comes with risks.
But over the past several years, the local industrial market has undergone a transformation. Developers have flooded Southern Nevada with massive warehouse projects, especially in North Las Vegas; more tenants have been distributing products to other states; fierce demand for space has pushed vacancies to record-lows; and a rising tally of developers and other investors started doing deals here.
“(It’s) really crazy how active this market has become,” said Colliers International broker Dan Doherty, a longtime industrial real estate specialist in the valley.
‘The secret got out’
Las Vegas’ warehouse market had been growing for years before the pandemic sent the sector into overdrive, as the public health crisis sparked an accelerated shift to online shopping that fueled demand for distribution space.
Taylor Arnett, first vice president of acquisitions at developer CapRock Partners, said his firm and others have been leasing projects “as quickly as we’ve ever seen it in any of our careers.”
Four or five years ago, it would typically take six to 12 months to lease a new project. Today, he added, it would be “strange” for a project to not have any leasing activity while still under construction.
Arnett, whose firm has built around 2 million square feet of industrial space in Southern Nevada, said it’s close to finishing another 700,000 square feet. Most of that new batch is pre-leased, he said.
Other signs of the warehouse boom:
— In September, a footwear brand owned by clogs maker Crocs Inc. announced plans for a roughly 730,000-square-foot distribution center in North Las Vegas — in a complex that broke ground this summer.
— A new industrial park near North Las Vegas Airport sold for more than $140 million in October, the month after construction finished, and was already fully leased.
— Last month, VanTrust Real Estate announced it started construction on the first two buildings of a 350-acre project it’s developing in North Las Vegas’ Apex Industrial Park, and it already signed a tenant for one of the buildings.
Overall, Southern Nevada has around 153 million square feet of industrial space, up from 123 million in 2017, according to data from John Stater, Colliers’ Las Vegas research manager.
Much of the construction in recent years has been speculative, meaning developers started projects without users lined up. But tenants have been plentiful. The market’s vacancy rate is just 1.3 percent, down from 4.5 percent in 2017.
Keith Earnest, executive vice president at VanTrust, said he viewed Southern Nevada as a “sleeper” market years ago, adding there “wasn’t much activity” in construction.
In recent years, however, other developers and landlords have entered the market.
“Unfortunately, the secret got out,” Earnest said.
‘It’s a gamble’
In the mid-1990s, when Doug Roberts started working in Southern Nevada’s industrial market, there were some regional and national tenants. But the market was mostly dominated by firms that supplied Las Vegas’ resorts and convention facilities, he recalled.
New buildings also were typically smaller than what developers put up now. Back then, a big project was 200,000 to 250,000 square feet, said Roberts, a partner with Panattoni Development Co.
Southern Nevada had a big wave of warehouse construction in the early- and mid-2000s as the broader real estate market surged on easy money. But after the bubble burst and the economy tanked, industrial development largely ground to a halt.
Only around 52,700 square feet of industrial space was completed in 2011, after developers built more than 42 million square feet from 2000 through 2008, according to Stater’s numbers.
Rob Lujan, broker with Jones Lang LaSalle, said site locators probably skipped over Las Vegas a decade or so ago because the recession had crushed the local economy so badly.
“A lot of real estate groups just shied away,” he said.
In 2014, with the economy still limping out of the Great Recession, Las Vegas consulting firm RCG Economics cited “a gap between supply and demand” that indicated an opportunity for more industrial space in Southern Nevada.
“But many developers are not constructing new buildings,” the firm said in a report.
Later that year, warehouse developer Prologis held a ceremonial groundbreaking for a project in North Las Vegas, saying the new building, at roughly 464,200 square feet, was the region’s largest speculative industrial project in years.
By 2015, other spec projects were in the works, including by Panattoni.
“It’s a gamble, there’s no doubt about it,” Roberts told the Las Vegas Sun at the time. “But we think we’re right.”
Tenants move in
Las Vegas’ casino-heavy economy has long been fueled by tourism. But amid the growth of e-commerce, distributors found reasons to set up shop here.
The ports of Los Angeles and Long Beach are about 300 miles away, and truckers leaving Las Vegas can service about 20 percent of the U.S. population in a day’s drive, industry pros say.
Developers could also buy huge chunks of land at relatively low prices, letting them lure tenants with more affordable rents. Also, industry pros say, Southern California’s higher real estate prices, tight availability of warehouse space and longer development timelines made Southern Nevada — long known for lower costs and lighter regulations — an attractive alternative.
Warehouse construction surged with more than 5.3 million square feet of industrial space completed in Southern Nevada in 2019, up from about 1.4 million in 2015, according to Colliers.
Companies such as e-commerce giant Amazon, beauty retailer Sephora, baby products maker The Honest Co. and sports apparel retailer Fanatics opened distribution centers here. Fanatics, which opened its North Las Vegas facility in 2017, told the Review-Journal recently that it picked the location to serve its West Coast customers.
By housing merchandise for teams in Nevada, California, Washington and other states, it has been able to “cut down on delivery times to these fans,” a spokesperson said.
Tapestry Inc., owner of luxury brands Coach and Kate Spade, unveiled plans last year to open a distribution center in North Las Vegas to also serve West Coast customers. Its fulfillment center is expected to span more than 788,000 square feet and designed to annually distribute 22.2 million units and hold 4 million units of inventory.
Overall, the number of tenants in Las Vegas from around the United States is “magnitudes higher than it was just 10 years ago,” Colliers’ Stater said.
Amazon effect
Amazon has an especially big footprint with 15 locations in Southern Nevada, the company said.
Its ubiquitous blue delivery vans can be seen all over the Las Vegas Valley, and Amazon operates multiple big industrial buildings near Las Vegas Motor Speedway.
Landlords have paid rising prices for Amazon’s buildings there, too.
In April, a Boston investment firm acquired an 857,000-square-foot Amazon warehouse for $226.4 million as part of a two-building acquisition along Tropical Parkway off Interstate 15, property records show.
By comparison, in 2017, an 813,000-square-foot Amazon facility sold for $73.4 million as part of a two-building purchase along I-15 at Lamb Boulevard.
Sam Bailey, manager of economic development policy at Amazon, told the Review-Journal that Las Vegas can serve the Mountain West region “quite well” and back up or support such markets as California and Phoenix.
He cited Las Vegas’ available land, access to talent and geographic location that, he said, is conducive to routing goods.
As a result, Southern Nevada has been able to “step forward as a competitive market for distribution and e-commerce,” Bailey said.
‘Balloon is slowly losing air’
Southern Nevada also has a track record of going gung-ho for real estate. Over the last few years, amid a surge of investor spending, industrial property values were driven so high it was “almost comparable to the housing bubble,” said CapRock’s Arnett.
But, he added, “the balloon is slowly losing air.”
The Federal Reserve has raised interest rates multiple times this year in a bid to fight inflation, driving up real estate financing costs for everyone from homebuyers to commercial property investors.
Southern Nevada’s industrial leasing is “still strong,” but sales have slowed, said Lujan of Jones Lang LaSalle.
“Groups just can’t afford to pay what they once could for properties,” he said.
Also, people will continue to shop online, but if e-commerce spending slows, demand for warehouse space could be affected.
Stater noted that developers would face risks “if the economy goes south pretty badly” and tenants stop signing leases for new projects.
“The question then is, when are your loans coming due? How long can you wait for the economy to come back?” Stater said.
For now, demand for warehouse space is “outpacing supply,” with firms still hunting for buildings, said Earnest of VanTrust.
“With that vacancy rate, you feel pretty confident,” he said.
Contact Eli Segall at esegall@reviewjournal.com or 702-383-0342. Follow @eli_segall on Twitter.
Government help
The huge growth in Southern Nevada's industrial market has been heavily fueled by the rise of e-commerce.
But government spending and tax breaks have also helped, as local officials have sought to lure distribution firms and diversify the region's casino-heavy economy.
"You can't drive through Southern Nevada now without seeing some sort of warehouse or distribution center along the highway," said Kris Sanchez, deputy director of the Governor's Office of Economic Development.
GOED has approved tax incentives for multiple industrial projects in the Las Vegas Valley in recent years, including more than $25 million for a Google data center in Henderson and more than $15 million for a Novva Data Centers location in North Las Vegas.
It also approved $10.5 million in tax incentives for a Haas Automation complex in Henderson; more than $8.6 million for shoe brand Hey Dude's distribution facility in North Las Vegas; and $2.9 million for a North Las Vegas distribution center operated by Kate Spade owner Tapestry Inc.
In North Las Vegas, where developers have been launching waves of big warehouse projects, taxpayer dollars have helped expand the city's infrastructure, enabling more construction.
In April 2017, for instance, North Las Vegas City Council approved plans for about $43 million worth of street, water and sewer projects in the Las Vegas Motor Speedway area, which has been an especially popular spot for warehouse construction in recent years.
In September 2017, the U.S. Economic Development Administration spent $3 million for a sewer project in North Las Vegas that was designed to serve the "growing area" east of Interstate 15 and the 215 Beltway and north of Las Vegas Boulevard, the agency said.
The project was slated to "increase capacity and provide stability," which was "expected to lead to the expansion of several major manufacturing and logistics companies," according to the EDA.
In 2018, the city of North Las Vegas teamed with a landowner on a 12-mile water pipeline project in Apex Industrial Park, which, after plodding along for years with little development amid a dearth of infrastructure, has seen a burst of activity over the past year or so.
The Nevada Department of Transportation also awarded a $99 million contract in early 2020 for the construction of ramps, flyovers and street connections at the Beltway/I-15 interchange in North Las Vegas.
North Las Vegas City Manager Ryann Juden said the city competes with markets outside Nevada for companies. But sometimes, infrastructure will only count for so much when trying to recruit new employers, given Nevada's consistently low-ranking public education system.
"That is a major hurdle that we have to cross all the time," Juden said.
— Eli Segall
Apex comes to life
With the warehouse market booming in Southern Nevada, more developers have ventured to North Las Vegas' Apex Industrial Park, a rare surge of momentum for the remote area.
Apex, off Interstate 15 at U.S. Highway 93, has been around for decades and offers thousands of acres for potential projects. But for a long time, construction activity was scarce amid a dearth of infrastructure.
However, utility service has been expanding to the area, and over the past year or so, multiple companies have bought land and pushed ahead with construction plans in the industrial park some 20 miles northeast of the Strip.
The increased activity at Apex also comes amid higher land prices and the depleted availability of project sites in the northeast valley's Las Vegas Motor Speedway area, a popular warehouse construction spot in recent years.
Reno developer Dermody Properties broke ground last year on a 664,300-square-foot distribution facility in Apex; aluminum beverage can maker Ball Corp. unveiled plans last year to build a plant at Apex; developer VanTrust Real Estate bought roughly 350 acres last year with plans for a 4.5 million-square-foot industrial park; and grocery chain Smith's purchased nearly 100 acres last year.
NorthPoint Development broke ground this summer on an industrial complex that's expected to span more than 2 million square feet. Hey Dude, a footwear brand owned by Crocs Inc., unveiled plans to open a distribution facility in the project.
Rob Tecco, vice president of North American distribution and logistics at Crocs Inc., said in September that the property size it needed wasn't available in other parts of the Las Vegas Valley.
"Everything else was spoken for near the Speedway," he said.
— Eli Segall
