With all sectors keeping a steady pace, Nevada plans to stay a healthy market for years to come
Competition runs rampant in all real estate sectors of Nevada. Las Vegas has had dynamic economic growth, according to Charlie McPhee, senior vice president of marketing and leasing with The Howard Hughes Corp.
"Southern Nevada is one of the fastest growing metropolitan areas in the nation," says Alan J. Perlmutter, senior vice president of Las Vegas-based American Nevada Corp. "There are 4,000 to 7,000 moving in a month. It's a pro-business climate and the government is very cooperative. There are not state taxes, inheritance taxes, or inventory taxes - it's favorable from a tax standpoint."
There has also been an aggressive campaign by state and local agencies to broaden and diversify the economic base of Las Vegas, and lending practices have tightened, says McPhee.
"(The lending situation) is very competitive, very aggressive," agrees Shane Charlesworth, branch manager in the Las Vegas office of Salt Lake City-based Western Mortgage. "It's to the point that it gets cut-throat."
Lending is not the only area of competition, however. Retail is also growing and has become highly competitive in the area.
Retail holding steady
CB Commercial vice president Kit Graski says the vacancy rate will continue to hold "at right around 5%. It's been that way since early 1995." He adds that a substantial amount of retail is planned or right on line, such as the recently opened 1 million sq. ft. Galleria Mall. He says that most new shopping center spaces are 50% to 70% preleased before ground is being broken and are close to 100% preleased when the door opens.
Annual rents for the big box are in the high single digits, "$9, all the way up to $15 a sq. ft." on a 10-year lease, says Graski, adding that low-end, small tenants pay $17 to $27 for a standard five-year.
"Most retail land is selling for $7 to $10 a sq. ft.," says Graski, and building costs for the larger units range "around the low to mid $40 a sq. ft." Major players in the power center properties include Laurich Properties, KitchellCo. and Opus Southwest Corp.
Even existing malls are expanding and adding new tenants. The 1.2 million sq. ft. Boulevard Mall saw retail giant Macy's take over ownership of what was the Broadway as part of the Federated Department Stores' takeover of Broadway Stores Inc. And, a former site of Parkway Cinemas was taken over by The Good Guys, which constructed a 23,000 sq. ft retail site, the chain's third southern Nevada outlet.
At Lee & Associates, Mike Kammerling, senior vice president of the retail division, says, "According to our First Quarter report, we have planned 2.8 million sq. ft., which does not include what was underat the time, 686,000 (sq. ft.) as of March 1996."
Although most of the retail caters to the local population, some malls also attract tourists. "The Belz outlet mall also has business from the tourist population," says Kammerling. "There is also a huge amount of retail and specialty space that will occur on the Strip."
"We've seen a number of these power centers, a bunch of big boxes, large tenants. You won't see one or two more built in the next several years," Kammerling says.
Some major builders and developers include Pacific Properties, Leslie Dunne, Laurich Properties, World Premiere, Donahue-Schrieber, American Nevada and several others.
Multifamily remains healthy
Spencer Ballif, senior associate at CB Commercial, says the apartment side of Las Vegas is growing and remains healthy. "It's 5% on the vacancy side, and 8,500 units are coming on line this year, representing about 30 new buildings." He attributes that, in large part, to employment growth, pointing out that typically casino and hotel employees initially reside in apartments.
Ballif says some of the major players in apartment construction include Oasis Residential; Picerne, Fairfield, Olen Co.; Pacific Properties; Falcon Homes; and A.G. Spanos.
"In the long term our market will stay very healthy," says Ballif. "It's a prolonged boom over the next three years. Our economy is still diversifying and growing in all sectors." He says some builders are finding they have to build in peripheral areas and, as a result, some properties may have a more difficult time leasing out.
Monthly lease rates for high-end luxury apartments vary, "in the high-$600 to $700 for a one-bedroom Class-A, a two-bedroom is in the mid-$800s to low-$900s and a three-bedroom is as high as $1,000," Ballif says.
Luxury high-end projects make up 60% of the new developments because of the land prices. "In order to justify costs, you have to build high-end, with nine-foot ceilings, attached or detached garages, security and gated communities with an extensive clubhouse," Ballif says.
High activity in industrial
Perry Muscelli, senior vice president at CB Commercial, says activity and demand is very strong in the industrial sector, where vacancies remain low. "There is good absorption, good leasing activity. The market may get overbuilt in the next 12 months. The vacancy rate is about 2.5%. It's going up a little and will go up dramatically in the next six months."
"Currently, we're tracking almost 40 million sq. ft., about 1 million is vacant," Muscelli says. "Staggering amounts are being built. Between this year and the next 12 months, about 7 million more of speculative square feet will be built; that is too much. We think rents are going to come down a little bit." He says lease cost for distribution space is between $0.32 or $0.33 per sq. ft. "We think it will be in the high 20s pretty quick."
However, there is concern about the industrial market. "The greatest nervousness is in industrial," says Perlmutter, "because of the large amount of spec space being built now."
Office space coming on line
CB Commercial vice president Brad Peterson says Las Vegas office space is now at approximately 9 million sq. ft. "New space is coming on line, a lot of new space throughout the remainder of this year and into the first and second quarter of 1997," he says. "Some is spec and some preleased space. It seems like half and half."
Land costs are anywhere from $6 to $12 per sq. ft. Lease rates for Class-A range from $1.75 to $2.40. Class-B runs $1.50 to $1.75 and Class-C, $1.20 to $1.50. Lease terms run three to five years. Building costs for shells, typical wood frame stucco, are $50 to $60 per sq. ft. "There is a mix of local and out of state developers," Peterson says.
"It's an extreme," says Western Mortgage's Charlesworth. "There are a lot of entry level purchases or real high-end from $275,000 to $300,000 or above. The high-end is from people coming in from out of state."
"We are tracking the entire market-place, which is approximately 38 million sq. ft. Realistically in 1996, we should add about 4 million sq. ft." Lee & Associates industrial specialist Dave Knapper says. "We've preleased approximately 30%. There is in that figure something not to be missed. We have to look at how much build-to-suit makes up the new space. It's just about one-third of all space built. It really comes from the strong demand and lack of inventory."
"Over the next year, we are still projecting about 900,000 sq. ft. of new space on line. It will not be an over-built situation," says Chuck Witters, executive vice president with Lee & Associates and president of the local Commercial Marketing Group. "About 700,000 to 800,000 sq. ft. of that will be absorbed for the year. There are a lot of buildings here with lower parking ratios; they are losing tenants to buildings that are parked to a 5-to-1 parking ratio or higher. Those 5-to-1s have a lot less vacancies."
Hotels continue building
In the hospitality sector, new hotels continue to be built. "Hotels are still growing at an explosive rate," Perlmutter says.
The most recent hotel to be completed on the Strip is the Monte Carlo, a joint venture with Circus Circus Enterprises and Mirage Resorts. The property is modeled after the famous Place du Casino in Monte Carlo, Monaco, and includes fanciful arches, chandeliered domes, marble floors, ornate fountains, gas-lit promenades and a Gothic glass and marble registration area overlooking a waterpark.
Christopher J. Nelson, principal at Trammell Crow Co. in northern Sparks, Nevada, says industrial growth in the Reno/Sparks area includes a build-to-suit West Coast distribution facility for Stanley Tools in Fernley. Trammell Crow is the development agency, but Stanley will own the 322,000 sq. ft. facility.
Projects under construction or recently completed total 961,600 sq. ft. of new speculative industrial development. Of that, about 45% are preleases. "Predominantly they are bulk warehouse facilities, representing eight different projects: two by us, one by Security Capital, two by Demody Properties, two by Trainor and Associates and one by local developer Meiser Co."
Nelson says the general northern Nevada economy has seen very strong growth. Employment growth in 1995 was 6.5%, and the population grew about 4%. "Unemployment went down to 4%," he says.