WESTERN SNAPSHOT, DECEMBER 2009

Las Vegas Industrial Market

1. MARKET MOVES

Joyce

Southern Nevada’s economic indicators continue to reflect 2 years of sustained economic contraction, the longest recession in the post-war era. Continued pull-back is expected in the industrial sector, which is largely supported by the area’s two largest employment sectors — construction and leisure hospitality. The build-it-and-they-will-come mentality of the past decade has been replaced with a wait-and-see attitude as vacancy rates are now twice the levels reported in third quarter 2007 and vacant inventory is at an all-time high. Until sustained recovery begins to emerge — likely 2 to 3 years out — build-to-suit projects will likely dominate a modest new construction market, with few fundamentals and fewer banks supportive of speculation. A significant example of this trend is the Freeman building on the southwest corner of Sunset Road and Torrey Pines in the southwest submarket. Expected to be completed before the end of the year, the three-story, 31-acre, 412,000-square-foot office and warehouse building will provide a new home for Nevada’s premier convention and exhibition services company.

2. MARKET MEASURE

Southern Nevada’s occupied industrial inventory has fallen to 90.2 million square feet, down 1.9 million square feet during the past 12 months and the lowest occupied inventory total in more than 2 years. Perhaps even more daunting, Las Vegas has tripled its industrial vacancy rate during the last 3 years and is currently reporting a record high of 12.4 percent. True economic recovery requires new job creation, a condition precedent for any sustained relief in the industrial market. It will also require that consumers consume. From demanding new homes to increased discretionary spending requiring higher inventory levels for local, regional and national retailers, the economy’s ability to rebound will largely be a function of consumers’ ability (and willingness) to spend. Looking forward, sustained business profits, improved industrial utilization and falling real estate inventories will act as leading indicators for industrial expansion.

3. THE MARK OF A MARKET

The build-to-suit market was out of reach for many as land prices, construction material and labor cost escalated. At the same time, a feverish residential market was causing industrial inventories to be shifted over to housing developments at higher and higher prices. A resetting of raw land values, which are down 75.9 percent in less than 2 years, has created an environment that is more suitable for owner-user buildings. Freeman is no exception as it sits across the street from three other recently constructed build-to-suit projects: (1) a new Pepsi bottling plant; (2) International Game Technology’s manufacturing and administrative facility; and (3) Creel, a large-scale commercial printing facility. Combining lower cost with the southwest’s land inventory, much improved transportation infrastructure and proximity to McCarran International Airport and the Las Vegas Strip provides fertile ground for similarly positioned developments in the foreseeable future.

— Jake Joyce is a project manager for Las Vegas-based Applied Analysis.

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