Valley office vacancies hit highest level

Las Vegas is overbuilt, with 48.6 million square feet of office space, pushing vacancy rates to 17.3 percent in the fourth quarter, Voit Commercial Brokerage reported.

It's the highest level of vacancy on record, Voit Senior Vice President Kevin Higgins said. The rate has climbed 3.7 percentage points from 2007 and was below 10 percent as recently as 2005.

Absorption, or demand for space, retreated to 637,800 square feet in 2008, down 68.9 percent from 2.05 million square feet the previous year. Higgins said it would take two or three years of that kind of historical absorption to get vacancy back to 10 percent.

"There's tremendous supply, and some believe vacancy is going to increase further," he said. "That's why you won't see much new office product coming online in 2009."

Office space under construction fell to 1.4 million square feet in the fourth quarter, down slightly from 1.5 million square feet in the same quarter a year ago, Colliers International reported.

Planned construction dropped to 340,800 square feet, compared with 3.8 million square feet a year ago.

Vacancy rates are expected to rise this year because of the "dire" employment situation and the large amount of space under construction, said John Restrepo of Restrepo Consulting Group, who compiles quarterly market reports for Colliers.

"That said, as these projects are completed over the next four quarters and construction continues to taper off, the market will be given a chance to stabilize," Restrepo said. "But we don't expect the office market to show signs of recovery until some time in late 2010."

In a trend reflective of the residential market, bank-owned office properties represent the lion's share of sales activity, Higgins said.

"Right now, the banks are more eager to do something with their portfolios as opposed to private individuals who either have staying power and believe they can hold on until things turn around or they believe their project is better than some of those in trouble," he said.

The credit crunch hit Las Vegas' commercial real estate markets hard in 2008, said Dave Dworkin, research analyst for Grubb & Ellis brokerage.

Toward the end of this year, financial institutions that were previously hesitant to provide real estate loans should be in a better position to start lending to those who have a sufficient amount of equity and good business history, he said.

"I feel a lot of these banks and credit card companies have been cautious, holding onto their money and building up a safety net," Dworkin said. "If all goes well, they'll start loosening up so developers can start doing business again. It's going to take time."

Grubb & Ellis is showing 18.5 percent vacancy in the fourth quarter for 33.6 million square feet of office space.

Monthly average asking rent fell to $2.40 a square foot in the fourth quarter, down 1 cent from the third quarter and down 29 cents from the same quarter a year ago, Colliers reported.

Major projects completed during the quarter include Eastgate Plaza II in Henderson (144,300 square feet), Hughes Airport Center (65,000 square feet) and The Plaza at Whitney Ranch (22,000 square feet).

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