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Once prominent Hughes Center now sits nearly half empty

Updated December 18, 2023 - 6:12 pm

Hughes Center near the Sphere is facing an uncertain future as the office park is nearly half vacant.

While being right next to the Strip used to be a plus for the office park, it’s now a minus because of the traffic and added entertainment amenities in the area, said Michael Petrivelli, director of market analytics for CoStar Group Inc.

“It really just comes down to the old real estate adage location, location, location,” he said. “This used to be a prime location near the Strip, but now it has become a huge headache for commuters going in and out of there, especially since the Formula One construction started last year.”

Hughes Center, the 68-acre former crown jewel of the Las Vegas office market, is now seeing vacancy rates nearly quadruple the average for the Las Vegas office market and New York-based owner Blackstone’s $325 million loan on the office park went into special servicing earlier this year.

According to data from CoStar, the 1.4 million-square-foot Hughes Center is about 42 percent vacant as of this month, a seven point increase from late 2022. The Las Vegas office market overall had a 11.1 percent vacancy rate in the third quarter.

Two industry experts think the office park will be sold in the near future. Representatives of Cushman & Wakefield, which handles leasing at the property, didn’t respond to multiple requests for comment.

“You have a prime location next to the Sphere, the Venetian, the proximity to the Strip,” Petrivelli said. “The issue is, the current use of the property now has nothing to really do with the Strip and the activity that’s happening there right now.”

Taber Thill, executive vice president of the office division for Colliers Las Vegas, said it’s likely that parts of Hughes Center will be redeveloped into hospitality-focused projects, but some office space may remain as having offices near the airport and the Strip makes sense for some companies.

Thill handled leasing at Hughes Center from 2002-2017.

Blackstone declined to comment on whether Hughes Center was on the market, but said in an emailed statement to the Las Vegas Review-Journal that it isn’t making a big bet on office real estate.

“We began writing this property down three years ago and completely wrote it off earlier this year,” the statement said. “We aim to invest in sectors with strong fundamentals propelled by macro demand trends, which is why the majority of the real estate we own is in sectors like logistics, student housing and data centers and why less than 2 percent of our owned portfolio is traditional U.S. office.”

No longer prime

Because of its age and location, Hughes Center is no longer prime real estate. Experts say Summerlin, Henderson and other areas around the 215 Beltway are where companies want to locate.

Thill said these suburban areas have lured tenants away from the Hughes Center since they have the newest office buildings, with walkable amenities. Their employees also often live in these areas.

The changing priorities of office tenants in Las Vegas also changes how the Hughes Center is viewed, Thill said.

He said Hughes Center is now more of a “value play” for companies looking for more affordable office space and who want to be near the Strip.

Higher vacancy rates could drive down leasing prices for the Hughes Center, Thill said. Since the buildings are still in good condition, companies that don’t mind being so close to the Strip will continue to want to be there.

So far, it doesn’t appear that lease rates have dropped much or at all at Hughes Center as rates range from $2.75 to $3, according to CoStar.

The average lease rate in Las Vegas right now, is $2.52 per square foot, according to Colliers.

Despite all of this, Thill said occupancy at Hughes Center could increase if the pipeline of new office building construction slows down as a result high interest rates as companies are still looking to locate to Las Vegas.

Contact Sean Hemmersmeier at shemmersmeier@reviewjournal.com. Follow @seanhemmers34 on X.

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