Vacancy rates on the rise in valley

Industrial vacancy in Las Vegas remains relatively low at 4.8 percent in the third quarter, but it's been steadily increasing for the past 12 months, a real estate consultant reports.

Perhaps more alarming is the steep drop in the absorption-to-completion ratio, or the amount of space taken compared with what's been built, John Restrepo of Restrepo Consulting Group said.

The ratio slipped to 0.48 in the third quarter, meaning more than half of the new space is sitting empty, compared with 0.92 in the previous quarter and 0.80 a year ago. It's been steadily declining since peaking at 1.93 two years ago.

Absorption and completions can vary dramatically from quarter to quarter and the declining ratio is not necessarily a signal that the market is softening, Restrepo said.

"Part of this could be the slowing in the economy," he said. "We've probably had some industrial users supporting the residential industry who either vacated space or put a portion up for sublease."

Nearly 450,000 square feet of industrial space was taken during the third quarter, down from 1.2 million square feet in the previous quarter. Meanwhile, developers completed 935,000 square feet and have another 3.1 million square feet under construction, according to Restrepo.

Demand in Las Vegas Valley's industrial market remains strong, said Vic Donovan, managing partner of Colliers International brokerage. However, a dwindling supply of available land, coupled with increasing construction and land costs, will ultimately hamper new speculative construction, he said.

"The changing industrial development landscape is causing a number of developers to look at new, more creative and dense forms of industrial development and at other markets outside the state," Donovan said.

Monthly lease rates backed off in the third quarter to 80 cents a square foot, two cents less than the previous quarter, Restrepo reported. They're up from 76 cents a year ago.

Dave Dworkin, research analyst for Grubb & Ellis brokerage, reported 5.9 percent vacancy for 91.1 million square feet of industrial inventory in Las Vegas.

He said the industrial market remains a challenge, forcing developers to find "new and creative solutions" to meet the needs of tenants and buyers. Some sellers are offering price concessions and extending due diligence periods.

Harsch Investment Properties delivered several buildings at Speedway Commerce Center in North Las Vegas fully built out to help get them leased, he said. Developers are collaborating with land owners in joint ventures to make the numbers work and others continue to gamble with out-of-pocket expenses on new projects.

Las Vegas has one of the lowest industrial vacancy rates in the country, said Craig Shute, managing director of CB Richard Ellis. His firm showed third-quarter vacancy at 5.3 percent, about the same as Los Angeles; Orange County, Calif.; Portland, Ore.; San Francisco; and Albuquerque, N.M.

Shute said he expects industrial vacancy to remain low with 40,000 hotel rooms coming in the next five years or so.

CB reported nearly 4.5 million square feet of industrial construction with the speedway area being the hottest place to build, Shute said. Harsch has 480,000 square feet and Thomas & Mack is working on 1.9 million square feet.

In the southwest submarket, Las Vegas-based Juliet Cos. is building Blue Diamond Business Center, a 1.5 million-square-foot industrial park at Blue Diamond Road and Arville Street.

The industrial market has seen a slight slowdown in construction activity due to rising land costs in Las Vegas, Shute said. Average construction cost has remained unchanged for two quarters at $60 to $90 a square foot.

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