WESTERN SNAPSHOT, APRIL 2005

Las Vegas Industrial Market

The Las Vegas area has weathered the economic downturn of the recent past in fine fashion. Its industrial market, in particular, had an exceptional year, with net absorption totaling more than 3.7 million square feet, the highest it has been since 2000. By the end of 2004, there was a total 78 million square feet of industrial product in the Las Vegas area, with approximately 2.5 million square feet of new space currently under development. Another 4.3 million square feet is scheduled to be developed this year. Currently, the Las Vegas industrial market has an 8.7 percent vacancy rate, which is down from 10.2 percent at the end of 2003. Until more distribution projects are completed, vacancy rates will continue to decrease and leasing rates will continue to rise in 2005.

The drop in industrial vacancy and the rising demand of distribution space boosted average lease rates at the end of 2004. Warehouse and distribution space currently post a 9.5 percent vacancy rate with rental rates priced at 35 to 48 cents per square foot. There are 49 million square feet of warehouse and distribution space currently in the Las Vegas area. Manufacturing facilities are currently maintaining a 5.3 percent vacancy rate with rental rates priced at 59 cents per square foot. There are currently 18 million square feet of manufacturing space in this market. Flex/R&D space is stable with a 10.5 percent vacancy rate with rental rates listed at 83 cents per square foot. There are currently 11 million square feet of flex/R&D space in the Las Vegas area.

The population of the Las Vegas metro area has been steadily growing by about 70,000 people per year on average, bringing the current population to about 1.7 million. Unemployment dropped to 3.5 percent from 4 percent last year, and 13,000 new industrial jobs had been created by the end of 2004. Both of those figures far outpace the rest of the country. Visitor volume also made a positive turnaround, which has helped small businesses to grow and flourish.

The current economic upturn has produced some trends in the industrial sector. Due to the ever-growing popularity of conferences and conventions in Las Vegas, convention service companies have been experiencing steady growth and success. More companies finally discovered in 2004 that the Las Vegas area is an untapped resource for distribution. Las Vegas has become an effective hub for distribution due to the exceptionally low rates for hauling out of this region. This region receives many truck shipments. After their loads have been dropped off, trucks would leave empty. Many distribution facilities have since been established, so that when these trucks drop off goods, they can leave with new shipments. The service industry catering to both local residents and tourists remains very strong in the region as well.

The Las Vegas market has been experiencing an incredible surge in the construction sector. This is a terrific time for development because it is still relatively easy to find good space. Active developers in the Las Vegas area include Trammell Crow Company, Dermody Properties, Jackson-Shaw Company, Harsch Investments, Panattoni Construction and MagnuM Opus Development.

Two unique occurrences in 2004 have affected industrial availability: housing prices increasing by 59 percent and land prices doubling. Residential developers continue to absorb quality industrial-zoned land, which creates a shortage of parcels for industrial use, thus driving up rental rates.

The economy is expected to continue to remain strong in Las Vegas for the foreseeable future. It is therefore anticipated that with new jobs and businesses continuing to migrate to this area, demand will stay strong, vacancy rates will remain stable and the unemployment rate will continue to fall.

Doug Albright is a partner at Albright Callister & Associates, LLC/TCN Worldwide.

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