Valley office market remains weak in quarter

The exodus from Las Vegas office space continued in the fourth quarter as vacancy rose to 23.7 percent and net absorption fell to negative 174,333 square feet, commercial real estate brokerage Colliers International reported.

Job recovery in the office market remains too weak to produce consistent, strong demand for office space, suggesting a rough road ahead, though arguably easier than 2010, Colliers research director John Stater said in his quarterly market report.

Office sector employment dropped by 1,900 jobs in the 12-month period ended in November, the Nevada Department of Employment, Training and Rehabilitation reported. The unemployment rate for Las Vegas stood at 14.3 percent in November.

Asking rental rates slid to $2.10 a square foot, down 4 cents from the previous quarter and down 17 cents from the year-ago period, Colliers reported. Rents have been declining since fourth quarter 2007, when the recession started pounding Las Vegas.

Stater said everyone's looking for a sliver of positive news on the Las Vegas office market.

"Fair enough. The market is adjusting," Stater said. "I know that doesn't sound terribly positive. To say the market is recovering would be largely incorrect, although some portions of the market are recovering slightly."

For example, office users and investment sales are increasing. That's important, Stater said, because it shows value in the market and suggests that the office properties are probably undervalued, making plays for real estate a smart investment for buyers.

CB Richard Ellis reported fourth-quarter office vacancy of 24 percent, compared with 23 percent at the end of 2009. Average asking lease rate was $1.75 a square foot. Effective lease rates often remain lower than asking rates, allowing for landlord concessions and discounts, but the gap is narrowing. One year ago, average asking lease rates were $1.96.

Although net absorption for 2010 came to about negative 551,000 square feet, the office market posted positive net absorption for the second straight quarter, which is a strong indicator that the office market is at the bottom, CB Richard Ellis reported.

Las Vegas-based business advisory firm Applied Analysis showed fourth-quarter office vacancy at 24.2 percent, compared with 23 percent a year ago. Average asking rent was $2.07 a square foot, down from $2.23 in 2009.

New construction of office space is limited to Tivoli Village at Alta Drive and Rampart Boulevard, which will deliver 145,000 square feet of office space in its first phase, and the 300,000-square-foot Metropolitan Police Department headquarters at Alta Drive and Martin Luther King Boulevard.

Tom Naseef of Distinct Real Estate Advisors said certain commercial markets will recover before others in Las Vegas, depending on one's definition of a comeback.

"I think retail will start experiencing more discretionary spending," Naseef said. "Office is so oversaturated that it's going to take longer. We lost 140,000 jobs. If we've got 50 million square feet of office space and 15 (percent) to 20 percent vacancy, that's 10 million square feet of vacant space. The average worker occupies 200 square feet. It's going to be five to seven years to get back to 10 percent vacancy."

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