After the bubble and burst, Las Vegas’ commercial real estate industry is picking up again. Weak spots remain, but mothballed projects are being completed, warehouse construction is on the upswing, the bloated office vacancy rate slowly is improving, investors are buying shopping centers at a fast clip, and land sales are climbing.
A decade ago, investors flooded the valley with new warehouses, often breaking ground without tenants lined up. More than a few of these investors were rookies, but with the economy roaring, few had trouble filling buildings. The industrial market’s vacancy rate was just 3 percent in spring 2006.
But many projects were built poorly and in bad locations, and buyers and tenants disappeared with the recession. The area’s vacancy rate ballooned to almost 15 percent in 2010.
After building 31 million square feet of space locally from 2002 to 2008 — with 6.8 million square feet in 2007 alone — investors did not open a single project in 2012. Funding had evaporated as banks collapsed throughout the country. Even if lenders had been looking for deals, they likely wouldn’t have considered Las Vegas, one of the hardest-hit markets in the country.
Today, the vacancy rate has fallen to about 9 percent, and construction crews are back to work. Developers opened 1.1 million square feet of industrial space in Southern Nevada last year, up from 814,000 square feet in 2013.
Recent and current projects include FedEx Ground’s 300,000-square-foot distribution center in Henderson; Konami Gaming’s 200,000-square-foot expansion near McCarran International Airport; and Prologis’ 464,000-square-foot building in North Las Vegas.
Sales prices are rising steadily for at least some types of deals. Among transactions worth $ 2 million to $ 20 million, pricing increased 13 percent from 2011 to 2014, from $ 57 per square foot to $ 82 per square foot.
Like warehouse investors, office developers couldn’t build fast enough during the go-go years. But many had no development experience, and a good number of their tenants worked in real estate and were part of the same bubble — and eventual burst.
After the economy collapsed, buildings emptied as tenants closed shop. The office market’s vacancy rate reached as low as 7.5 percent at one point in 2006 but soared to almost 23 percent in 2011.
It’s now 20 percent. Asking rents are largely flat, and investment sales dropped in 2014 after rebounding from the recession. Landlords spent $ 300 million less in 2014 compared with 2013 amid a drop in bulk deals.
The office sector remains the most struggling in Las Vegas’ commercial real estate industry, but there are some bright spots.
For instance, investors bought the mothballed ManhattanWest mixed-use project for cents on the dollar in 2013 and resumed work last year. They imploded its unfinished nine-story condo tower in February and are considering replacing it with an office high-rise.
The 20-acre property on Russell Road at the 215 Beltway, now called the Gramercy, already has two four-story office buildings. Developers have leased at least 80 percent of that space.
Las Vegas’ retail sector got a major new player last year with the October opening of Downtown Summerlin, a once-mothballed shopping and office project at Sahara Avenue and the 215 Beltway.
The 106-acre, 1.6 million-square-foot complex, owned by Howard Hughes Corp., was abandoned mid-construction during the recession by then-owner General Growth Properties. For years, only a steel skeleton sat on the land, a constant reminder of Las Vegas’ building bust.
Howard Hughes, a spin-off of General Growth, resumed construction in 2013. More than 250,000 people turned out for a four-day opening party.
Like other sectors of commercial real estate, shopping plazas were packed with tenants during the boom years but lost them in droves during the recession. The vacancy rate for anchored retail centers in Southern Nevada was about 4 percent in 2007 and jumped to 12 percent in 2011. It now is 9.5 percent.
As retailers and shoppers return, landlords also are showing more interest. Investors bought 48 shopping centers last year for a combined $ 485.7 million, up from just six sales worth $ 13.3 million in 2010.
Among the notable transactions: the $ 145 million sale of a portion of Showcase Mall on the Strip and $ 32.3 million sale of Rampart Commons near Summerlin.
There always has been plenty of land in Southern Nevada, and during the real estate craze, investors couldn’t buy enough. Housing, office, warehouse, retail and casino developers gobbled up vacant property, paying big dollars. The U.S. Bureau of Land Management, a key source of raw land for homebuilders, sold about 2,900 acres locally for $ 777 million in 2006.
Deals evaporated during the recession. The BLM sold just 107 acres in Southern Nevada from 2007 to 2012, an average of 18 acres per year.
Now, with the economy improving, construction is picking up, and buyers are purchasing more land at rising prices. Investors bought 2,761 acres last year in Southern Nevada for an average price of $ 276,422 per acre, up from 803 acres at $ 199,377 each in 2011.
Land values in some parts of the valley have soared, going from $ 175,000 an acre to $ 400,000 in just months in 2013, according to Home Builders Research.
One area with rising prices is Summerlin. Community developer Howard Hughes Corp. sold 280 acres of land there in 2014 for $ 145 million, or $ 518,000 an acre. That compares with 316 acres for $ 112.5 million, or $ 356,000 per acre, in 2013.