Office market strengthens during the third quarter

October 29, 2004 - Consumer confidence from a strengthening economy has helped fuel employment growth and business expansions throughout the Las Vegas Valley, creating a robust office market.

Office space grew to 32.3 million square feet in 1,119 buildings during the third quarter, with 2.9 million square feet of unoccupied space for a 9.1 percent vacancy rate, reports Applied Analysis, a Las Vegas-based economic research firm. That's a 1.7 percent improvement from a year ago and 0.6 percent better than the previous quarter.

There was 362,000 square feet worth of new space added to the market in the third quarter with 2.1 million square feet of additional projects under construction and another 5.1 million square feet planned, the firm reports.

"We have and will continue to see the success of office condominium projects, as users believe they can build equity by purchasing rather than renting," says Brian Gordon, principal of Applied Analysis. "Interest rates and speculation of further land price appreciation have sparked the recent flurry."

Shea Commercial, for example, is developing $32 million worth of office condo projects in the Las Vegas Valley, totaling 300,000 square feet. The five projects feature for-sale office space from 1,200 to 10,000 square feet. The complexes are scheduled to break ground in the fourth quarter with space available by mid-2005.

Similarly, Christopher Commercial is developing the 15-acre, 150,000-square-foot Mountain View Professional Park, located at U.S. 95 and Smoke Ranch Road inside the Las Vegas Tech Center II. The complex will contain 18 single-level office buildings, ranging from 4,500 to 9,000 square feet in size, for sale or lease.

"Each quarter this year, we have seen increasing absorption and if that trend continues in the fourth quarter, we will have the highest annual absorption this decade," says Rosalind Holland, a research analyst with Grubb & Ellis Las Vegas. "As the Las Vegas economy continues to prosper, a growing population in need of services is creating a heightened demand for quality office space."

Projects coming online in the third quarter include a new three-story, 71,000-square-foot Class A office building at Marnell Corporate Center, located at Sunset Road and Gillespie Street in Las Vegas; the $7.5 million, 98,500-square-foot Coronado Medical Center, located at Sunset Road and Interstate 215; the first phase of the 100,000-square-foot Pagentry West Office Park, located at W. Russell Road and I-215; and the first two phases of CENTRA Point, totaling 300 square feet, at Durango Road and I-215 in Las Vegas, among others.

New office projects now underway include Molasky Companies' four-story, 93,846-square-foot IRS Building, located at Grand Central Parkway, between F Street and U.S. Highway 95, scheduled to open in the first quarter of 2005; the four-story, 129,335-square-foot Longford Medical Plaza, located at Summerlin Parkway and Buffalo Drive, to finish by fourth quarter 2004; and Nigro Development's 15-acre, 170,000-square-foot Desert Canyon Business Park, located at Russell Road and I-215, scheduled for occupancy by the first quarter of 2005.

"Professional Class A space remains ever popular among users with a low 8 percent vacancy rate, the strongest of all office-product types," says John Restrepo, principal of Restrepo Consulting Group, LLC, a Las Vegas-based economic research firm. "Meanwhile, the Northwest is the healthiest submarket with a 6.2 percent vacancy rate in the third quarter, despite having the valley's largest inventory. This is primarily attributable to the rapid population growth and business activity spurred by the recent completion of the I-215 Beltway coupled with such developments as Centennial Hills and Summerlin."

The high transaction volume has prompted real estate brokerage firms like Colliers International to expand its office team by hiring Rhonda Panciro, formerly of Plise Development Cos., and Dean Kaufman.

Rendering of Coronado Medical Center.

They will work with Tom Stilley, Lizz Schafer, Taber Thill and Trish Grant who combined for over 1 million square feet worth of office transactions last year valued at $95 million. According to Vic Donovan, Collier's managing partner, the Las Vegas office is on pace to record $980 million in lease and sales transactions in 2004.

"An estimated 64,000 people will move into Southern Nevada in 2005, which will increase the demand for office-related employment," says J.J. Peck, a senior information coordinator at CB Richard Ellis. "Las Vegas' unemployment rate was at 4 percent in the third quarter compared to the national rate of 5.4 percent. And the State Department of Employment, Training, and Rehabilitation estimates that financial services, professional and business services employment will grow to approximately 192,800 jobs by 2012, representing a 29 percent growth from August 2004."

The overall weakest submarket, however, remains downtown with a 25 percent vacancy in the third quarter, Restrepo says. While its Class A properties still have respectable occupancy rates, like the Pauls Corporation's six-story, 103,951-square-foot City Centre Place, located at 400 S. Fourth Street, several older properties continue to drag its average down.

For example, downtown's Class B buildings have a 33 percent vacancy rate, while Class A properties remain at a resilient 4.8 percent. Yet new office projects such as Tower Development and Realty's major remodeling of 701 Bridger Avenue and LaPour Partners' 46,342-square-foot Holsum Lofts at 299 W. Charleston Boulevard, could soon change things.

"We're seeing a stable office sector at the moment with rents above market and sale prices escalating," says Judi Woodyard president of Commercial Associates. "But stability may waiver a bit in 2005, as the office market will be somewhat overbuilt. Excess vacant inventory will most likely prompt leasing concessions and incentives. And with interest rates on the rise, office space sales are likely to decline in 2005. I expect to see a more 'normal' market by 2006."

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Article ©: T. Illia, Las Vegas Business Press