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WESTERN SNAPSHOT, MAY 2006
Las Vegas Industrial Market
With nearly 80 million square feet of existing space, the Las Vegas industrial market has seen tremendous growth in the last few years. Demand continues to outpace supply, and land for large-scale industrial parks is becoming harder and more costly to assemble. This is forcing developers to consider other alternatives such as “land banking” and expanding outside the Las Vegas Valley where land prices haven’t yet begun to escalate. Developers are looking north to Apex and Mesquite, east to Laughlin and south to Pahrump, Jean and Sandy Valley.
Certain submarkets are very strong, including North Las Vegas and the southwest. North Las Vegas, for example, is home to the majority of industrial development. Many regional and national distribution and manufacturing companies are relocating to North Las Vegas because of easy access to Interstate 15 and the lowest rental rates in the market. CDW, a major computer and parts distributor, is opening its new 500,000-square-foot facility in North Las Vegas. Aliante, North Las Vegas’ successful master-planned community, and other popular housing developments are helping to increase the labor pool and make the community a more attractive place to live and work.
Also in North Las Vegas, within the 102-acre Logisticenter, DP Partners is constructing a 500,000-square-foot spec distribution building, which is slated for completion in fourth quarter 2006. Another 372,400 square feet of industrial space can be added to the property. Operating Engineers will add another 393,000 square feet to the Golden Triangle Industrial Park when its two new buildings are completed this spring. Lauth Property Group will add 412,093 square feet of distribution space this summer, and ProLogis Corp. will complete its ProLogis Park North with building 6 totaling 255,000 square feet and scheduled for completion this fall. Trammell Crow Co.’s plans to build 192,500 square feet for early 2007 occupancy will bring the total square footage of distribution projects that are planned or underway in North Las Vegas to more than 2.2 million square feet.
Jackson Shaw Company is constructing the first phase of the Northeast Crossing Commerce Center, which will consist of approximately 130,000 square feet of freestanding buildings for sale. At completion, the 26-acre industrial park will also include mid-bay office/warehouse space and potential build-to-suits. Harsch Investment Properties purchased additional land south of the existing Speedway Industrial Park with plans to build another 500,000 square feet of flex and mid-bay space. Also, EJM Development purchased a 40-acre parcel last year near the Speedway where more development is planned.
The southwest Las Vegas submarket, where vacancy rates are among the lowest in the region, remains active. Las Vegas-based Juliet Companies, developers of Blue Diamond Business Center, a 110-acre master-planned business park near I-15 and Blue Diamond Road, is under construction on Phase II, which will add 340,000 square feet, including a 70,200-square-foot mid-bay building and a 287,500-square-foot distribution warehouse. At full build out, the business park will service the southwest area of Las Vegas with approximately 1.5 million square feet of warehouse and office space. Phase I consisted of two buildings: a 30,000-square-foot build-to-suit office for Enterprise Rent-A-Car and a 68,750-square-foot mid-bay office/warehouse.
In addition to Juliet, two other industrial developers are breaking ground on significant projects. Majestic Realty is about to start on the Beltway Business Center, which will comprise two buildings totaling 540,000 square feet. Located near the I-215 Beltway and Decatur, this co-development effort with Thomas & Mack Development Co. features industrial and flex-office product. EJM will complete the Arroyo Business Center located near the I-215 Beltway and Rainbow, adding another 308,000 square feet to its portfolio by 2007.
Strong demand for industrial space has brought the vacancy rate down to a healthy 4.98 percent in fourth quarter 2005, down from 7.03 percent a year earlier. There are currently more than 2.7 million square feet of industrial space under construction with another 7.1 million square feet in the planning stages for the next 12 months. The majority of the construction is in the distribution product type with leading developers including Juliet Properties, Majestic, EJM, Panattoni and Operating Engineers. Lease rates have gone up slightly in all product types ranging from $0.34 to $0.58 per square foot for big box space and, depending on the submarket, from $0.60 to $0.70 per square foot for mid-bay space.
In response to the shortage of land and increasing land costs valley-wide, developers also are becoming more creative, incorporating industrial product into mixed-use projects with office and retail, as well as building smaller, for-sale industrial condo projects. The owner/user sales market has been strong, as a result of rising lease rates and relatively low interest rates. There is increasing demand for small industrial buildings particularly with yard space.
Karolina Janik is a sales professional in the Industrial Properties division of CB Richard Ellis in Las Vegas.
RENO, NEVADA
A middle market with major opportunities.
It’s good to be in the fastest growing state in the nation. In fact, if you were to make Southern Nevada its own state, northern Nevada would be the third fastest growing state in the nation behind Southern Nevada and Arizona. Growth here has been different from that found in Las Vegas, at least as it relates to jobs and industry.
Northern Nevada has been working diligently to diversify its economy, as gaming has continued to decline as a percentage of the overall economy. Northern Nevada gaming was impacted by Native American gaming in Northern California. Gaming is now less than 15 percent of the local economy in Northern Nevada. The remainder is supported by mining, construction, manufacturing and distribution. IGT, the world’s largest manufacturer of slot machines, is based in Reno. In addition, many technology firms in California have opened accounting offices in Nevada. Although quality of life seems to the marketing pitch, it is the absence of state taxes that has the greatest allure.
The hottest segment of Reno’s commercial real estate market is by far retail. With the population rate growing at slightly more than 4 percent, retailers are struggling to keep up. The mountain ranges on the east and west sides of the valley have forced the housing growth to spread to the north and south. Retailers are following the rooftops to meet the demand of new residences. Summit Sierra, a 750,000-square-foot lifestyle center, opened in March to great fanfare. Many of the tenants were new retailers to Northern Nevada. This will help eliminate some of the leakage to Northern California. In the north valleys, there are several power centers under construction. In addition, there are several infill projects and rehab projects in the older established submarkets.
While not as hot as retail, industrial is not far behind. Many new big box distributors are coming to town to serve California and the West Coast market. Wal-Mart is completing a 1 million-square-foot distribution center in the Tahoe Reno Industrial Park. Located 8 miles east of Sparks on Interstate 80, this development is the largest industrial park in the country. The other hot submarket is Stead, located directly north of Reno on Highway 395. Most of the land in Stead is controlled by either Panattoni Development or DP Partners. They are the two largest industrial developers in Northern Nevada.
Office has been steady, but not as robust as retail or industrial. Most of the growth is from existing firms expanding and the home construction industry. As more of the national homebuilders come to town, they have made a huge dent in the office market. Tech firms like Microsoft are also expanding their presence in Northern Nevada. The hottest market by far is South Meadows, a submarket with great freeway access located in the heart of executive housing.
The hottest trend has been the conversion of older hotel casinos to condo developments. There are currently more than 3,500 condos planned for conversion from hotel casinos or new condo projects slated for the downtown Reno area. The question on everyone’s mind is the depth of that market. Early projects have been amazingly successful.
Tim Ruffin is managing partner and senior vice president in Colliers International’s Reno office. |
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