Q2 Las Vegas Market Update Wrap Up

During the past quarter a few broker members from various brokerage firms provided highlights on the local retail, office & industrial markets for our Event Highlights. We have compiled the highlights here for an informative Q2 Las Vegas Market Update.

Industrial Market Update Provided by Garrett Toft, SIOR with CBRE
Demand Remains Strong as Market Conditions Continue to Improve

The Las Vegas industrial market continued to show resiliency in the second quarter of 2020 even amidst the economic uncertainty related to the COVID-19 pandemic. Robust tenant demand for new and larger industrial space contributed to 1.7 million sq. ft. of net absorption, slightly outpacing Q1 absorption. The vacancy rate decreased for the third straight quarter to 3.4% which is encouraging given the current state of the world economy. Although demand from e-commerce companies drove absorption, other tenant industries such as third-party logistics, food and beverage, and manufacturing companies were active. Sublease space is rising but not drastically and at the moment there seems to be enough demand from winning areas of the economy to offset weakness in the resort and convention services industries.
Notable transactions in the quarter include Camco Marine leasing 203,884 sq. ft. at Northgate Distribution Center and Ruby Has leasing 373,000 sq. ft. at the recently completed North 15 Logistics project. Based on the current tenant demand in the market, Q3 is shaping up to be another great quarter.

Despite the uncertainty, Preylock Real Estate Holdings purchased 855,000 sq. ft. Tropical Distribution Center, leased to Amazon, at a record ±4.50% cap rate. VanTrust Real Estate developed and sold the project.
If current activity continues there is a good chance that that it will be hard to recognize in the year end 2020 statistics that a major macro event took place. It’s been a wild ride over the last few months, but we are optimistic about the future of industrial and the ultimate economic rebound for our City.

Office Market Update Provided by Patti Dillon with Colliers International

Nevada experienced a sharp decline and disruption in real estate activity after a stay-at-home order for the State of Nevada was issued due to the spread of the Coronavirus. All non-essential businesses were shut down while the virus continued to spread throughout country. Commercial office demand for lease and purchase came to a halt with the exception of critical service providers (insurance, finance, legal, real estate, healthcare) who were willing to commit to the typical 3-7 year lease terms.

To date, Nevada has seen little to no compression on lease rates thus far, and only a minimal number of subleases hit the market. Sales volume has fallen significantly, but cap rates held firm for those transactions that did close during this period. There were eight (8) significant commercial office sale trades in the month of May. All were investment sales of high occupancy multi-tenant buildings. Building sales with closings set for June/July were either cancelled outright, stalled or resulted in re-negotiations of 5-10% reductions in price.

While construction was considered “essential”, many planned office projects were forced to reassess their viability and timing. It is anticipated that only 40-60% of the projects planned in Las Vegas pre-COVID will actually deliver in the next 18-24 months.

The majority of lease transactions that were in active negotiation prior to and during the pandemic were signed at market asking rates. A lag in permitting/construction/inspections, furniture delivery and phone/data install lead times contributed to tenants experiencing some delays in taking possession of their office space during the pandemic. There were some tenants that put their real estate decisions on hold temporarily, and a minimal number that canceled altogether. Typically, negotiation terminations were smaller lesser credit tenants, and some back office and call center tenants that were unsure of the long-term impacts of social distancing and health protocols on their overall operations. These groups appear to be gravitating towards shorter lease commitments that reduce their overhead and directly impact their bottom line.
During the shutdown, many tenants qualified for assistance under the CARES ACT and PPP loans. Those tenants immediately caught up on their temporary delinquencies. Other tenants that did not qualify or qualified for limited amounts continued to seek rent relief to help offset business losses and keep them from shutting their doors. Most landlords have been willing to work with these tenants to come up with mutually agreeable plans and effective solutions to assist and retain them. These solutions vary from rent relief, rent reduction, term amortizations, and rent deferrals with term added on the back end and partial payments to at least cover operating expenses.

Social distancing, online virtual meetings and a remote work force, initially thought to be temporary, are starting to emerge as the next “new norm” as the pandemic lingers. It will take at least a few more quarters to fully assess what the real estate landscape will look like as companies take a hard look at their long-term space needs, and what percentage of their workforce will continue to work from home. A recent Colliers International survey of 4,000+ office professionals in 25 countries found that 80% of employees preferred to continue to work remotely at least one day per week, and 76% indicated that their work/life balance was improved by working from home. Many experts evaluating the effects of the pandemic are predicting that working remotely is here to stay. To this end, companies will be forced to invest more heavily in technologies including cybersecurity as data privacy becomes a major concern in many industries as employees’ personal devices do not have the appropriate measure of protections in place.

Companies looking at full and partial re-entry of their workforce, will need to be extremely cautious. Appropriate health and safety protocols driven by the CDC, OSHA and local governing bodies will need to be implemented. These protocols include social distancing, sanitization, ventilation, provision of PPE for their employees and visitors, clear on site messaging and training regarding new policies, sage points of entry, non-sharing of equipment, staggered work shifts, travel policies, responsiveness to reporting of symptoms and diagnosis’, limited occupancy and in-person meetings, protection of visitors, contact-less interactions, and providing trusted sources of information. The well-being of their employees also needs to be taken into consideration. Employees are faced with making arrangements for at-home distance learning having extremely limited access to childcare, caring for at-risk family members and senior parents, and an employee’s own fears or returning to the workplace due to underlying medical conditions.

Mark Nevins of Forbes said recently, there is no “playbook” for what to do in the face of a pandemic or any “silver bullet solutions”. However, surrendering is not an option, and most industry leaders have taken advantage of the downtime to reinvent themselves and create new effective ways to conduct business and thrive. Our industry faces many unknowns over the next 6-18 months, but no doubt in my mind we are up to the challenge, and the market will recover as it always does through every cycle and economic crisis, and what tests us ALWAYS makes us stronger.

Retail Market Update Provided by Jason Otter with Logic Commercial Real Estate
As states continue to reopen in phases following the Covid-19 pandemic, there is much uncertainty in the local Las Vegas marketplace as well as the overall US economy. Specifically in the retail sector of commercial real estate, it seems that most businesses that are reopening are implementing inconsistent procedures and observing constant changing guidelines in hopes of generating some sort of income but its still to be determined if that income generated will be enough to support expenses and allow retailers to stay in business.

Any retail business that was deemed non-essential during the government shut down and wasn’t allowed to operate is now actively looking to adjust their business model to hopefully remain open during any potential future shutdown. Examples of this would be soft goods retailers looking to expand into carrying food items in their stores in hopes of being deemed an essential business. Businesses that were allowed to operate during the shutdown are reviewing their business model to ensure they are able to operate in a more efficient and safe manner while attempting to maximize sales. Going forward, brands like Café Rio will continue to expand in Las Vegas but will modify their design to include a drive thru on future restaurant locations.

Landlords and Property Managers sure took on a burden during the shutdown. EVERY tenant was looking for and expecting some sort of concession from landlords even though the majority of landlords weren’t receiving concessions from their lenders. Some of the common requests our teams at Logic dealt with were requests for rent abatement, rent deferment or partial payment of rent and occupancy costs. Strategic landlords were proactive in working with tenants and commonly pushing towards awarding their tenants deferred rental payments and extending the term of the tenant’s lease. Some landlords were also successful in negating release of tenant exclusives or restricted uses in exchange for rental concessions to the tenant.

Most investors have been focused on actively sourcing capital and waiting to deploy funds in the marketplace if/when there is a decline in values. Other investors are using this time and low interest rates to upgrade the quality of assets they own and are aggressively chasing well located shopping centers with long term, credit worthy tenants. Single tenant NNN deals such as Starbucks, Chic-Fil-A, McDonalds and others are trading at historically low capitalization rates and sellers have multiple offers to choose from.

2020 is continuing to be a roller coaster ride for us all, regardless of what sector of commercial real estate you focus on. When forecasting ahead, I recommend you keep your seat belt on as this roller coaster ride of a year isn’t over yet.


Cassie Catania-Hsu | Managing Director
CBRE | Mountain-Northwest Division
T +1 702 369 4921 | F +1 702 794 0144 | C +1 702 556 7100
cassie.hsu@cbre.com | www.cbre.com