The Las Vegas office market continued down a bumpy road to recovery in the third quarter as vacancy rates decreased slightly, rental rates fell and leasing activity improved.
Vacancy for 33.5 million square feet of office space in the Las Vegas Valley stood at 24.1 percent, down from 25.4 percent in the previous quarter, while asking lease rates fell 5 cents to $1.79 a square foot, commercial brokerage CB Richard Ellis reported.
Leasing activity has increased significantly in recent quarters, with a handful of national tenants signing new leases or renewing leases for existing space. Net absorption, or the amount of office space taken minus the space vacated, exceeded 100,000 square feet in the third quarter.
Among significant transactions during the quarter was law firm Kolesar & Leatham leasing 31,000 square feet at Tivoli Village, a mixed-use development under construction at Rampart Boulevard and Alta Drive.
“First of all, the property they’re going into is the only one of significant size under construction in this economy,” CB Richard Ellis office broker Brad Peterson said. “And it’s 30,000 square feet, a pretty good size deal for the marketplace right now.”
Ford Motor Credit Co. renewed a lease for 56,581 square feet at its call center off the Las Vegas Beltway at Pecos Road, and Citadel Broadcasting Corp. took nearly 22,000 square feet in the northwest.
While the increase in leasing comes as a great relief for the struggling office market, the economy remains fragile by most indicators. Unemployment hit an all-time high, housing has yet to stabilize and property values are expected to decline further.
Office-related sectors of the economy lost 1,700 net jobs from May 2009 through May , the Nevada Department of Employment, Training and Rehabilitation reported.
Health care and insurance companies accounted for about one-fourth of businesses taking office space this year, highlighting how the new health reform law might be affecting the Las Vegas office market, Colliers International research director John Stater said.
“2011 certainly looks more promising than 2010 did and sustained job growth, even weak job growth in the office sector, could bring a few more positive quarters and get the process of recovery off to a start,” Stater said.
Colliers showed third-quarter office vacancy of 23.5 percent, compared with 23.1 percent in the previous quarter and 13.7 percent a year ago. Average asking rent is $2.14 per square foot for full service, down 3 cents per square foot from the second quarter and down 19 cents per square foot from a year ago.
No new office space was completed during the third quarter and not much is expected for the rest of the year and into 2011, CB Richard Ellis reported.
The level of planned office space held steady at slightly more than 200,000 square feet, though it’s dropped precipitously from about 900,000 square feet a year ago. Most of the planned space is in the airport submarket, with some in North Las Vegas.
Office vacancy is likely to jump dramatically in the coming quarters as banks start to expedite the next wave of commercial foreclosures, Grubb & Ellis research manager Dave Dworkin said.
He reported overall vacancy of 23.9 percent for 35.1 million square feet of office space and asking rent of $2.54 a square foot for Class A, or premium, office space and $1.82 for Class B office space.
Landlords have been so desperate to keep vacancy down that leases are being negotiated at incredibly low rates with special stipulations, Dworkin said. One such stipulation is the “blend and extend” lease modification, which restructures the current lease well ahead of its expiration date.
The landlord feels secure about getting a term extension for an existing tenant, and the tenant receives short-term relief in the way of lower lease rates, tenant improvement allowance and other incentives, Dworkin said.
Contact reporter Hubble Smith at email@example.com or 702-383-0491.