“The Las Vegas industrial market was one of the last western U.S. markets to feel the full effect of the economic recovery. Because of this slower recovery, we are still benefiting from pent-up demand in all product types and still have 10%–15% rent growth before we get back to peak rents. E-commerce requirements continue to push speculative development for big-box space and, for the first time in several years, the smaller mom-and-pop industrial users have come back to the market.” — Dan Doherty, SIOR, Executive Vice President | Las Vegas
Existing home sales are a significant demand driver for industrial real estate, especially from the furniture and home improvement industries. Las Vegas is benefiting from a strong housing market after being one of the hardest hit during the subprime mortgage meltdown. In addition, Las Vegas stands to benefit from the broader strength of existing home sales in the western part of the U.S., which grew 2.5% in the past year, according to the National Association of Realtors.
Along with an increase in e-commerce occupiers resulting in nearly 4 million square feet of positive industrial absorption, this has helped drive significant growth in Las Vegas in the first half of 2017. This absorption is equal to 3% of its total inventory, making it the top industrial growth market in the country for the first half of 2017.
One of the biggest logistics drivers in Las Vegas is location. Las Vegas is within one day’s drive of the Southern California and Phoenix regions, giving it access to a large population base. Interstate 15 also passes through Las Vegas, providing quick highway access to the Mexican border to the south and the Canadian border to the north.
Because of a growing population, demand from e-commerce and of course tourism, McCarran International Airport continues to expand. Through its partnership with Marnell Properties, McCarran International Airport has evolved into a first-class air cargo facility. Part of the master expansion plan for the airport is the air cargo center, a 200,928-square-foot freight and distribution facility offering build-to-suit suites for tenants including UPS and FedEx.
After peaking at more than 14% in 2010, the Las Vegas industrial market has enjoyed steady year-over-year drops in overall vacancy. Today, vacancy stands at 5.4%. While rising vacancies were originally expected due to a high quantity of new development, strong demand has kept up with new supply hitting the market.
The region’s lowest vacancy rate for the first half of 2017 was in the East Las Vegas submarket (3.1%), followed by West Central (4%) and the area around the airport (5.4%). Vacancies are low across all size ranges, but are lowest in buildings of more than 500,000 square feet because of strong demand from e-commerce users.
Demand for industrial space in Las Vegas exploded in the first half of 2017, with more than 3.6 million square feet of occupancy gains — already higher than all of 2016. Las Vegas is on pace to have its strongest year on record for net absorption.
Net absorption is positive in six of the seven Las Vegas submarkets, but strongest in North Las Vegas with more than 2.4 million square feet of occupancy gains in the first half of 2017. A majority of the absorption in the Las Vegas region is coming from newly constructed buildings, with buildings completed in the first half of 2017 accounting for 74% of the total occupancy gains in that time period.
The industries most active in occupying industrial space in Las Vegas during the first two quarters of 2017 were involved in the wholesale, manufacturing, and transportation and warehousing sectors. Local companies took about 37% of the leased square footage tracked over the first two quarters of 2017. Companies headquartered in the Midwest took 20.4%, 11.8% of leasing came from companies based in the Southwest U.S. (including California) and companies from the Southeast states took 9.2%.
The Las Vegas industrial inventory expanded by 3.7 million square feet from new development in the first half of 2017. An additional 4.9 million square feet of industrial space should be completed by the end of the year, putting the likely year-end construction total at 8.6 million square feet.
Projects that should be completed in the third quarter are 38% preleased or build-to-suit, while those slated for completion in the fourth quarter are 30% preleased or build-to-suit.
Asking rental rates for industrial space in Las Vegas have increased 30.6% since 2012, finishing midyear 2017 at $7.68 per square foot per year (PSF/YR). Despite the increase, asking rates remain far below the pre-recession high of $9.36 PSF/YR at year-end 2007.
|Inventory||Overall Vacancy Rate||Overall Net Absorption||New Supply (Construction)||Under Construction||Asking Rental Rate (PSF/YR)|
|Overall Vacancy Rate Q2 2016||Overall Vacancy Rate Q2 2017||Asking Rental Rate Q2 2016||Asking Rental Rate Q2 2017|
500,000 SF +
Source: Colliers International
For more insights, learn about the top 10 U.S. industrial emerging markets positioned to experience the most robust increases in demand from occupiers and owners. And stay tuned for more U.S. Industrial Market Spotlights!
Also: Read the U.S. Industrial Market Spotlight: Grand Rapids
Also: Read the U.S. Industrial Market Spotlight: South Florida
Also: Read the U.S. Industrial Market Spotlight: Cincinnati
Also: Read the U.S. Industrial Market Spotlight: Puget Sound
James Breeze is National Director of Industrial Research for Colliers International in the United States. Based in the Greater Los Angeles area, he prepares quarterly and specialized industrial research reports and interprets trends and data across the country.