WESTERN SNAPSHOT, DECEMBER 2007

Las Vegas Retail Market

Ouellette

Fundamentals within the Las Vegas retail market are expected to remain stable despite quarter-to-quarter variances in supply and demand. By the end of 2007, the market will expand by its largest annual tally in recent history. A substantial share of space entering the market has been pre-leased; this will continue to hold average vacancies below 5 percent.

Through the first 9 months of the year, construction activity remained strong and completed space totaled 2.7 million square feet, while another 1 million square feet is expected to come on line during the fourth quarter.

Some of the larger developments entering the market during the fourth quarter include Town Square, located on the South Strip near the intersection of Interstate 15 (freeway spanning from southern California through Nevada to Utah) and Interstate 215 (a beltway circling the Las Vegas valley). Town Square, a joint venture between Turnberry Associates and Centra Properties, will feature approximately 150 retail shops and more than 12 restaurants, in addition to substantial office space and an oversized children’s park.

In addition to Town Square that will cater to both locals and visitors, The Arroyo Market Square power center, located along the 215 freeway between Rainbow Boulevard and Buffalo Drive in the southwest portion of the valley, is expected to complete construction by year’s end. Arroyo Market Square is expected to comprise nearly 1 million square feet of space, including major tenants like Best Buy and Sam’s Club. The $150 million, multiple-anchor project will provide a number of services and shopping options for residents in the developing southwest valley.

With a record amount of space under construction, announcements for new developments in southern Nevada have not slowed. In fact, the northwest submarket will be home to some of the largest and most diverse retail shopping destinations in the state. Site work recently began to make way for The Shoppes at Summerlin. The regional mall is expected to showcase 1.5 million square feet of retail along with high-end anchors such as Neiman Marcus and Nordstrom. Programming for the mall is mixed with several other uses including commercial office and residential products.

Additionally, the $850 million The Village at Queensridge is located in the northwest portion of the valley and will feature 450,000 square feet of retail, as well as office space and residential condominiums. Finally, proposed plans for The Great Mall of Las Vegas remain in the works; this $750 million project is expected to commence construction in 2008.

While large-scale projects appear to be plentiful, one type of development that isn’t experiencing much activity in the commercial retail sector is the supermarket-anchored neighborhood center. Vacant land acquisitions and entitlements for residential uses during the past several years have created a lack of traditional retail development opportunities in selected submarkets. A feverish pace of residential sales during 2004 and 2005 resulted in residential land pricing premiums combined with strong asset appreciation. The market, specifically traditional grocery-anchored retail centers, will be required to re-balance demand for residential and commercial uses. As a result, very few grocery stores are in the development pipeline.

While overall supply levels are up, the Las Vegas retail sector posted a modest level of net absorption during the latest reporting period. During the quarter, the market expanded by 160,000 square feet as only two anchored retail centers came on line. These centers include the Albertson’s anchored Vista Commons along Charleston Boulevard in Summerlin, west of Interstate 215, and The Grove in North Las Vegas along Craig Road.

The market reported a comparably modest 75,000 square feet of net absorption during the third quarter, pulling the vacancy rate up slightly to 3.2 percent. Through the first 9 months of 2007, the market demanded (or absorbed) a healthy 2.5 million square feet, a figure that will contribute to more than 3 million square feet of annual demand in 2007.

Vacancies at quarter’s end were ahead of the 3.1 percent reported in the preceding quarter (second quarter 2007) and on par with the 3.2 percent reported in the prior year (third quarter 2006). Average asking rents of $2.13 per square foot per month were also reported, representing a negligible decline from the previous quarter and a 6.5 percent premium to the prior year. Pricing is also impacted by the size, location and type of space available. The quarterly market performance was not indicative of broader trends that include 4.2 million square feet of space under construction and healthy pre-leasing activity.

Despite the success of retail developers in the majority of retail sectors, there remains a little concern about the depth and breadth of consumer spending patterns, particularly in the face of a declining residential sector performance. Nation-leading rates of foreclosure, high-standing housing inventories and falling prices are impacting consumer confidence, and in turn, consumers’ spending decisions. Continued housing market instability is expected to prevail in 2008, which will have a real impact on retailers and potentially the development pipeline. Given the longer-run outlook for economic growth, we anticipate this trend will have only a modest near-term impact overall.

Jennifer Ouellette is a project manager at Las Vegas-based Applied Analysis.

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